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Bank Bonds: Size, Systemic Relevance and the Sovereign
Author(s) -
Zaghini Andrea
Publication year - 2014
Publication title -
international finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.458
H-Index - 39
eISSN - 1468-2362
pISSN - 1367-0271
DOI - 10.1111/infi.12050
Subject(s) - bond , swap (finance) , systemic risk , relevance (law) , asset (computer security) , credit default swap , economics , sovereignty , financial system , risk premium , monetary economics , business , financial crisis , financial economics , credit risk , actuarial science , finance , keynesian economics , computer security , politics , political science , computer science , law
I analyse the risk premium on bank bonds at origination with special focus on the role of implicit and explicit public guarantees and the systemic relevance of issuing institutions. Looking at the asset swap spread on 5,500 bonds, I find that explicit guarantees and sovereign creditworthiness have a substantial effect on the risk premium. In addition, while large institutions still enjoy lower issuance costs linked to the too‐big‐to‐fail (TBTF) framework, I find evidence of enhanced market discipline for systemically important banks, which have faced an increased premium on bond placements since the onset of the financial crisis.