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    What drives the cost of US dollar bond funding for banks?

    Access Status
    Fulltext not available
    Authors
    Poskitt, Russell
    Singl, C.
    Date
    2012
    Type
    Journal Article
    
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    Citation
    Poskitt, R. and Singl, C. 2012. What drives the cost of US dollar bond funding for banks?. Pacific Basin Finance Journal. 20 (4): pp. 460-478.
    Source Title
    Pacific Basin Finance Journal
    ISSN
    0927-538X
    School
    School of Economics and Finance
    URI
    http://hdl.handle.net/20.500.11937/16026
    Collection
    • Curtin Research Publications
    Abstract

    This paper decomposes issue spreads on US dollar-denominated bonds issued by LIBOR panel banks into credit risk and liquidity premium components. We attribute the recent increase in issue spreads to the investor perception that banks are less creditworthy than in the past. Although the behaviour of the credit risk component is well-explained by a structural model of default, this mechanism is nullified by the introduction of government guarantees. The behaviour of the liquidity premium component is partially explained by the bid/ask spread in the secondary market and issue size. Government guarantees also reduce the liquidity component of the issue spread.

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