The Determinants of Long-Term Debt Issuance by European Banks: Evidence of Two Crises

63 Pages Posted: 2 Oct 2015

See all articles by Adrian Van Rixtel

Adrian Van Rixtel

Banco de España - Department of International Economics & International Relations

Luna Romo

Banco de España

Jing Yang

Government of Canada - Bank of Canada

Multiple version iconThere are 2 versions of this paper

Date Written: October 2015


This paper is one of the first to investigate the determinants of bond issuance by European banks. We use a unique database of around 50,000 bonds issued by 63 banks from 14 European countries, allowing us to differentiate between different types of long-term debt securities. By investigating at the individual bank level, we are able to test explicitly a broad set of hypotheses from both the corporate finance and banking literature on the drivers of bond issuance. We use both country and bank-specific financial characteristics as explanatory variables. With respect to the country determinants, our findings suggest that "market timing" (low interest rates) drove issuance before but not during the crisis, when access to funding became more important than its cost. Moreover, during the crisis years, country-risk characteristics became drivers of bond issuance, while for banks from the euro area periphery central bank liquidity substituted for unsecured long-term debt. We also show that heightened financial market tensions were detrimental to bond issuance, and more strongly so during crisis episodes. Our results yield strongly significant coefficients for the bank-specific variables, with signs as expected. We find evidence of "leverage targeting" by issuing long-term debt during the crisis years. The positive and significant coefficient for the capital ratio supports the "risk absorption" hypothesis, suggesting that larger capital buffers enhanced the risk-bearing capacity of banks and allowed them to issue more debt. Moreover, banks with deposit supply constraints and relatively large loan portfolios issued more bonds, both before and since the crisis years. We also find that higher rated banks were more likely to issue bonds, also during the crisis period. Stronger banks issued especially unsecured debt, while weaker banks resorted more to issuance of covered bonds. Overall, our results suggest that stronger banks - including those from peripheral countries - maintained better access to longer-term funding markets, even during crisis periods. Our results pass several robustness tests. We present an additional aggregated country analysis in a separate appendix.

Keywords: bank funding, bond issuance, banking crisis, Europe

JEL Classification: G21, G32, E44, E58, F3

Suggested Citation

Rixtel, Adrian Van and Romo, Luna and Jing, Yang, The Determinants of Long-Term Debt Issuance by European Banks: Evidence of Two Crises (October 2015). BIS Working Paper No. 513, Available at SSRN:

Adrian Van Rixtel (Contact Author)

Banco de España - Department of International Economics & International Relations ( email )

Alcala 50
Madrid, 28014

Luna Romo

Banco de España ( email )

Alcala 50
Madrid 28014

Yang Jing

Government of Canada - Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9

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