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Irene Pablos Nuevo
- 26 September 2019
- WORKING PAPER SERIES - No. 2317Details
- Abstract
- This paper investigates the impact of the introduction and implementation of the new EU bail-in framework on the banks subordinated bond yield spreads over senior unsecured bonds, and links the bond yields developments with the characteristics of the issuing entities and the economic and financial environment. The analysis does not show evidence of a significant and generalized increase in the spreads as a result of a higher risk perception in the sample under review. The results reinforce the relevance of the Tier 1 capital ratio for making subordinated debt safer, while markets price the higher risk of banks with less stable sources of funding in their liability/capital structures. Market conditions and economic environment variables also play a key role in explaining bond spreads. Interestingly, after the introduction of the new bail-in framework, there is a convergence between the bond yields of the GSIBs and the non-GSIBs, which could point out to a reduction in the market perception of the so called “too big to fail” public implicit guarantee. Nonetheless, this convergence is mostly driven by the reduction of the yields of bonds issued by banks not categorized as GSIBs, and not by significant increases in the GSIBs’ bond yields.
- JEL Code
- G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 8 August 2017
- OCCASIONAL PAPER SERIES - No. 195Details
- Abstract
- This paper looks at how the profitability of banks in Sweden and Denmark has evolved in the context of negative interest rates. Overall, it finds that profitability has continued to improve, even with negative monetary policy rates. Data and modelbased evidence confirm that the monetary policy transmission to bank lending rates has so far not been impaired, though they point to a downward stickiness in the bank deposit rate. Swedish and Danish banks rely mainly on wholesale funding to finance their activities, and the fall in wholesale funding costs has led to a significant decline in interest expenses, thereby bolstering the resilience of the net interest income margin. All in all, this has created the prerequisites for positive credit supply developments, and possible unintended consequences of negative monetary policy rates, such as a reduction in credit supply, have not materialised. However, according to Sveriges Riksbank and Danmarks Nationalbank, the prevailing low level of interest rates has aggravated financial stability risks stemming from the large exposure of the banking sector to the housing market in both economies, in a context of rapidly rising housing prices and the resultant growing indebtedness of the household sector.
- JEL Code
- E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies