Bond Issuance and the Funding Choices of European Banks: The Consequences of Public Debt

Rancan, Michela; Cariboni, Jessica; Keasey, Kevin; Vallascas, Francesco

Abstract

European banks raise less funds in the bond market when there is a larger public debt in their national economies and this is reflected in lower leverage. We exploit numerous sources of heterogeneity in our data to demonstrate this result is driven by a crowding out effect from the public arena and not by a sovereign risk channel or political influence. The crowding out effect is stronger for less internationally active or smaller banks, and in banks characterized by more traditional business models. Our findings indicate that additional capital requirements on sovereign bond holdings can also influence bank funding composition via a decrease in the demand for sovereign bonds by the banking industry. The specific effect of these regulatory initiatives is critically dependent on bank characteristics.

Citation

Rancan, M., Cariboni, J., Keasey, K., & Vallascas, F. (2023). Bond Issuance and the Funding Choices of European Banks: The Consequences of Public Debt. Journal of Empirical Finance, 74, Article 101417. https://doi.org/10.1016/j.jempfin.2023.101417

• Journal Article Type: Article
• Acceptance Date: Aug 28, 2023
• Online Publication Date: Aug 31, 2023
• Publication Date: 2023-12
• Deposit Date: Sep 4, 2023
• Publicly Available Date: Sep 4, 2023
• Journal: Journal of Empirical Finance
• Print ISSN: 0927-5398
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 74
• Article Number: 101417
• DOI: https://doi.org/10.1016/j.jempfin.2023.101417
• Public URL: https://durham-repository.worktribe.com/output/1728897