H ISTORIA DE LA MOLINERÍA

In the previous section I have provided evidence that sovereign losses matter for banks’ cost of

funding. Government bonds are special in this respect because they provide a source of collateral

for secured interbank transactions (repos). Ideally, in order to test the hypothesis that sovereign

losses increased banks’ cost of funding, I would look at bank specific repo rates, but unfortunately

these data are not available at the bank level and are anonymized (Boissel et al. (2014)). However,

the results above are consistent with a broader view of the funding channel. In fact, banks with higher

exposure to risky sovereign debt are perceived as more risky by all types of lenders, not only other

banks. Therefore, it could be that other sources of funding are also affected by sovereign exposures.

One such source for which data are available are banks’ bonds issuance from SDC Platinum.

I focus on fixed–rate36_{coupon bonds issued by European banks and their subsidiaries. There is a}

total of 2,343 bonds with coupon rate data issued by EBA banks or their subsidiaries between 2009

and 2012 available on SDC Platinum. There are 110 different issuers, 49 of which are subsidiaries

of 61 EBA banks. A third of the sample (787 bonds) comes from banks in the UK, another half

(1,062 bonds) from Dutch, German, French and Italian banks, while non–European banks affiliated

to banks in the EBA sample only issued 186 bonds. Table 1.18contains some summary statistics

for the SDC sample. The bonds issues are quite large, with an average of $373 bil., they are quite

skewed towards the right (the median is $63 mil.) and they have an average coupon rate of 3.7%.

The average maturity, which is also the median and the mode, is five years, with very few bonds

(27 issues) with maturities shorter than one year. Finally, the ratings, which are available for 75%

of the bonds, are very high: the top 25% are of the highest quality (Aaa), but even the bottom 25%

is of a high–quality grade (Aa3).

It is important to keep in mind that this source of bank funding is not short–term, as the average

Table 1.18: SDC Platinum Bonds Issuance Summary Statistics

Variable Obs Mean Std.Dev. Min 25th ₅₀th ₇₅th _Max

Coupon (%) 2343 3.73 2.14 0.01 2.12 3.5 5 11.25

Maturity (years) 2327 4.79 2.38 0 3 5 6 10

Principal ($ mil.) 2343 373.4 648.3 0.046 12.9 62.9 399.4 658

Moody’s rating 1750 Ba3 Aa3 Aa2 Aaa Aaa

bond maturity is around five years. Thus it is very different from repos, which are mostly overnight

or with maturity less than a week (ECB (2012)). Nonetheless it could still be true that banks with

higher sovereign losses are perceived as more risky and they need to offer higher coupon rates for

medium and long–term bonds. I test this hypothesis below.

The empirical specification I employ in this section is very similar to the one used so far in the

paper, but with bond coupon rates as the dependent variable. Specifically:

Couponb,k,t=β1SovExpb,t+γ0Xb,t−4+α0Xk,t+ηb+λb,c,t+b,k,t

where Couponb,k,t is the coupon rate of bond k issued by bank b (which could be an EBA bank

or a subsidiary) in quarter t; SovExpb,t is the sovereign shock for an EBA bank b measured on a

quarterly basis, as in the analysis for syndicated loans. Therefore, even if the bond is issued by a

subsidiary the sovereign shock is measured at the parent bank level, as in the analysis of foreign

loans. Xb,t−4 are group b characteristics at the beginning of the year and Xk,t are bond–specific

characteristics, such as maturity and rating. I also control for λb,c,t, a set of country–quarter (or

year) fixed–effects for the country of the parent bank (or issuer, either parent or subsidiary) and a

set of bank (i.e issuer) fixed–effects,ηb. Table1.19presents the results.

An increase in the sovereign shock by one standard deviation (20 bps.) increases the coupon rate

maturity (in years) fixed–effects, but use a different set of country–time fixed effects. Columns (1)

and (2) have country–year effects, either for the country of the parent bank or for the country of the

issuing bank: the coefficient implies that for a 20bps. increase in the sovereign shock, the coupon

rate increases by 20–25bps, which is equivalent to one tenth of a standard deviation of coupon rates.

Column (3) uses country–quarter fixed–effects (for the country of the parent bank) and the coefficient

is quite stable, while in column (4), which also includes Moody’s ratings, the effect doubles to 52 bps.

for a one standard deviation of the sovereign shock. The sign of the coefficient on Moody’s ratings

is positive, as expected: on average, a decrease in the quality of the bond by one notch implies an

increase in the coupon rate by 30bps. Finally, column (5) includes a set of country–quarter fixed–

effects for the countries where the issuers are located, either a subsidiary or a parent bank. The

coefficient is no longer significant. This may be the result of limited variability in the independent

variable across countries and quarters, since five countries (UK, Germany, Netherlands, France and

Italy) make up 80% of the sample.