Banks Bracing as Their Own Debts Come Due

Billions in shorter-term, floating rate notes likely to prolong credit woes
By Jim O'Neill,  Newser User
Posted Aug 27, 2008 9:24 AM CDT
A banner is seen outside one of the buildings belonging to the headquarters of Wachovia Securities.   (AP Photo/Jeff Roberson)
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(Newser) – Billions of dollars worth of floating rate notes—vehicles used by banks to borrow money—taken out in 2006 are coming due in the next few months, and the industry is bracing for a wave of bank failures and asset sales as institutions struggle to pay off obligations, the Wall Street Journal reports. As a result, analysts say, credit will tighten further, worsening the US economic slowdown.

Some $787 billion in notes—a 43% jump over the previous 16 months—will come due through 2009, with $95 billion next month. As the banks scramble to pay, they’ll be less likely to make loans to businesses and consumers—and they face significantly higher interest rates for borrowing themselves. Central banks in the US and Europe are also under pressure to loan money to cover debts.