Access to Funding by European Banks and the Financial Crisis

Several theoretical and empirical contributions have been devoted to analyze specific determinants of bank debt issuance as well as its impact on banks’ and markets’ performance. These contributions frequently offer conflicting results and this mixed evidence is partly due to the lack of available data. In this paper, we use a rich database of 71 major listed European bank holdings from 2003 to 2011 to explore the determinants of bank debt issuance. We distinguish between collateralized and uncollateralized debt, and include a wide set of factors such as financial soundness indicators, bank reputation, macroeconomic and market fundamentals, issuance characteristics, and official liquidity support by central banks and governments. Regime-shifts between pre-crisis and crisis years and non-linearities are also considered using a Tobit quantile regression approach. Our results suggest that financial soundness indicators are only significant drivers of banks’ debt funding for large issuance volumes. Bank reputation (market value and ratings) are found to be significant determinants of the issuance of uncollateralized debt but they are only statistically relevant for large volumes of collateralized debt. It is also shown that official support mechanisms during the crisis -such as the Covered Bond purchase programme of the ECB for collateralised debt and government guarantees for uncollateralized debt- have a large and positive impact on bank debt funding.