EUROPEAN REVIEW OF BUSINESS ECONOMICS

[Digital ISBN: e-2184-898X | https://erbe.autonoma.pt]

ERBE 03 2 05

Banks’ Structured Bond Financing: Evidence from the European Market

JOÃO PINTO a, MÁRIO COUTINHO DOS SANTOS b

a Universidade Católica Portuguesa, Católica Porto Business School and CEGE, b CICEE – Research Center in Economics & Business Sciences, and Universidade Católica Portuguesa, Lisbon, Portugal.

To cite this article:

Pinto, João, Mário Coutinho dos Santos. 2024. Banks’ Structured Bond Financing: Evidence from the European Market, European Review of Business Economics III(2): 91-122.

DOI: https://doi.org/10.26619/ERBE-2024.3.2.5

Received: 20 May 2024. Accepted: 26 June 2024. Published: 30 June 2024.

Language: English

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Abstract

We examine the factors that influence European banks’ choice of issuing structured finance bond deals, in the form of securitization or covered bonds, vis-à-vis straight bond deals. Using a data set of 10,457 deals closed between 2000 and 2017, we find that banks may have used structured finance arrangements to manage credit risk and regulatory capital. Our results support the asymmetric information hypothesis that banks suffering from adverse selection problems choose structured finance over straight bond deals to overcome liquidity constrains and obtain longer maturity funding. Finally, we show that the choice between structured finance and straight bond finance affects not only banks’ capital ratios, but also their capital adequacy ratios.

Keywords

Banks; Capital structure; Debt choice; Securitization; Covered bonds; Straight bonds.

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