$5 Trillion worth of bank debt to mature between now and 2012

This is an interest report published by the NYT today. What I found particularly laughable is the fact that bankers think they are in a "comfortable position" and that they can "refinance at any time".  Amazing. Their memory is as efficient as a goldfish's. Not only those sums are absolutely huge and I am wondering where the money is going to come from, but also liquidity will probably dry extremely quickly with the first signs of defaults, creating a massive run to the bank probably worse than in 2008. Wait&Pray.
FRANKFURT — The sovereign debt crisis would seem to create worry enough for European banks, but there is another gathering threat that has not garnered as much notice: the trillions of dollars in short-term borrowing that institutions around the world must repay or roll over in the next two years.
The European Central Bank, the Bank of England and the International Monetary Fund have all recently warned of a looming crunch, especially in Europe, where banks have enough trouble raising money as it is.

Their concern is that banks hungry for refinancing will compete with governments — which also must roll over huge sums — for the bond market’s favor. As a result, credit for business and consumers could become more costly and scarce, with unpleasant consequences for economic growth.

“There is a cliff we are racing toward — it’s huge,” said Richard Barwell, an economist at Royal Bank of Scotland and formerly a senior economist at the Bank of England, Britain’s central bank. “No one seems to be talking about it that much.” But, he added, “it’s of first-order importance for lending and output.”

Banks worldwide owe nearly $5 trillion to bondholders and other creditors that will come due through 2012, according to estimates by the Bank for International Settlements. About $2.6 trillion of the liabilities are in Europe.

U.S. banks must refinance about $1.3 trillion through 2012. While that sum is nothing to scoff at, analysts seem most concerned about Europe because the banking system there is already weighed down by the sovereign debt crisis.

How banks will come up with the money is an open question. With investors worried about government over-indebtedness in Greece, Spain, Ireland and other parts of Europe, many banks have been reluctant or unable to sell bonds, which they typically use to raise money that they lend on to businesses and households.
Bond issuance by financial institutions in Europe plunged to $10.7 billion in May, compared with $106 billion in January and $95 billion in May 2009, according to Dealogic, a data provider. New issues have recovered somewhat since, to $42 billion in June and $19 billion so far in July.
“Banks that have trouble tapping new funding sources will have to shrink,” the Bank for International Settlements said in its annual report in late June. The institution, based in Basel, Switzerland, brings together the world’s main central banks.
Banks insist that they enjoy the trust of the markets and will be able to raise the cash they need.
“We’re in a comfortable position,” said Horst Bertram, head of investor relations at Bayerische Landesbank, Germany’s largest Landesbank, which is owned by the state of Bavaria and local savings banks. He said that as a result of government backing and a radical restructuring last year, the bank had ample cash and limited need for new financing.
Commerzbank, partly owned by the German government after a bailout, said its liquidity was well within regulatory limits. Commerzbank “can refinance at any time at market conditions,” the bank said.
The Bank of England estimates that British banks will need to issue £25 billion in bonds every month to meet their refinancing needs, which the central bank puts at £800 billion, or $1.2 trillion. That means banks will have to sell new bonds at double the rate they have been issuing so far this year.


Dave Narby said...

I hear the sound of printing presses being installed... : p

PEJ said...

I don't :-)
Even so, they can't monetize all that debt simply because Bernanke and friends want to remain in their position, and their self-directed survival instinct will prevent them from destroying the dollar and hence themselves.

Dave Narby said...

I have to disagree.

Notice how each deflationary impulse has been met with market intervention. BB will do whatever it takes to avoid a deflationary 'collapse', even if it means destroying the USD. He seems to think this is preferable for some reason.

If you follow the money, the Fed's primary purpose has been to prevent the collapse of the big banks. Absent a political sea change, this will continue.

Krugman is one of BO's advisors, and he's been calling for QE v2.0.

The other thing they might try is war with Iran. This provides an excuse in the event QE v2.0 cannot be implemented.

The game is to impose a one world government, by first imposing a world currency. They are attempting to make the SDR into a global clearing currency, the recent move by the IMF to lend at interest is the start of this.

This will naturally fail, as the IMF's SDR isn't a (formerly) hard currency which can be debased, such as the French Franc, British Pound, and USD were. However, they will try.

In the end, they will force the end to be fire instead of ice. This is because deflation hurts the fiat-rentier class, while inflation hurts the poor.

All of this is bullish for PMs, and nothing else.

This will naturally force a currency crisis. Then it gets interesting...

pej said...

Well, we'll see!
Here's to get you started: http://realitylenses.blogspot.com/2010/07/fed-officials-saw-no-need-for-more.html