In the years preceding the crisis, banks tended to favour the issuance of asset-backed securities over the issuance of covered bonds, because this form of finance appeared cheaper in an environment characterised by heavy underpricing of credit risk.
the sovereign spread – which assumes reserves are financed by foreign borrowing) times the change in reserves. Research suggests (Moreno and Turner (2004), that higher foreign reserves can reduce sovereign spreads as well as improve credit ratings. Thus the cost of holding reserves can be narrowed as reserve holdings rise.