Banks load up on short-term debt -- what?

Posted Nov 23rd 2009 2:30PM by Zac Bissonnette
Filed under: Financial Crisis

So remember when a bunch of banks got into trouble because they were overly-reliant on short-term debt and when they couldn't refinance it quickly, they had to either file for bankruptcy protection or get bailed out?

The Wall Street Journal reports (subscription required) that "Moody's Investors Service research shows that the average maturity of U.S. banks' wholesale debt has fallen to 3.8 years, from 5.8 years in 2006 and 7.8 years in 2002. These banks face $2 trillion of wholesale debt maturities through 2015, but about three-quarters of this amount comes due by the end of 2012."

But the banks aren't alone in an over-reliance on short-term debt: The Journal adds that "Many loans are only current right now because borrowers have floating interest rates that cost little."

Oh, and then there's this tidbit from The New York Times: "Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed."

Fantastic. Consumers have too much short-term debt, banks have too much short-term debt, and the U.S. government has too much short-term debt. The White House estimates that servicing the interest on the national debt will rise from from $202 billion this year this $700 billion a year in 2019 -- which could mean higher taxes along the way, meaning less money for consumers and banks to deleverage.

Tags: inthenews, short-term debt

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Reader Comments (Page 1 of 1)

11-23-2009 @ 3:39PM

David said...

So why in the world would this surprise anyone at all??? We bailed them out last time because we said they were too big to fail. What is to lead them to believe we won't do it again and again (especially with the liberal lack of leadership in Washington)? We told them they were "too big to fail" before and they haven't gotten any smaller!!!