Financial Reputation, Market Interventions and Debt Issuance by Banks: A Truncated Two-Part Model Approach

37 Pages Posted: 19 Nov 2014

See all articles by Gonzalo Camba-Mendez

Gonzalo Camba-Mendez

European Central Bank (ECB)

Santiago Carbo-Valverde

Bangor Business School; Universidad Complutense de Madrid (UCM) - Colegio Universitario de Estudios Financieros (CUNEF)

Diego Rodriguez-Palenzuela

European Central Bank (ECB)

Date Written: November 3, 2014

Abstract

In this paper we study the impact that financial reputation and official market interventions have on the timing and amount of debt issuance decisions by banks. To do so, we propose an extension of the two-part modelling framework of Cragg (1971, eq. 7 and 9) to accommodate random effects. We use quarterly information on 70 major listed European banks from 2003Q1 to 2012Q1. Focusing on a wide range of financial reputation indicators, we show that credit ratings are a significant and positive determinant of the timing of uncollateralised debt issuance decisions. Empirical results do not suggest that ratings have a significant impact on the amount of debt placed by banks. Other financial reputation indicators analysed are found to be of second-order relevance on debt issuance decisions. Our results also suggest that central bank liquidity programs may have had a large impact on both the timing and the amount of collateralised debt issuance during the recent financial crisis, but had a negligible impact on uncollateralised debt issuance decisions.

Keywords: bank debt issuance, collateral, crisis, monetary policy

JEL Classification: G21, G01, G15

Suggested Citation

Camba-Mendez, Gonzalo and Carbo-Valverde, Santiago and Rodriguez-Palenzuela, Diego, Financial Reputation, Market Interventions and Debt Issuance by Banks: A Truncated Two-Part Model Approach (November 3, 2014). ECB Working Paper No. 1741, Available at SSRN: https://ssrn.com/abstract=2518434

Gonzalo Camba-Mendez (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
0049 69 13440 (Phone)
0044 69 1344 6000 (Fax)

Santiago Carbo-Valverde

Bangor Business School ( email )

Bangor Business School
College Road
Gwynedd LL57 2DG, Wales LL57 2DG
United Kingdom

Universidad Complutense de Madrid (UCM) - Colegio Universitario de Estudios Financieros (CUNEF) ( email )

Serrano Anguita 9
Madrid, Madrid 28004
Spain

Diego Rodriguez-Palenzuela

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
(49) 69-1344-6480 (Phone)
(49) 69-1344-6575 (Fax) (Fax)

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