Risks to banks once cheap government-backed debt matures

Reuters ^ | January 28, 2010 | John Parry

[Cheap_Hessian]

NEW YORK (Reuters) - Emergency funding the U.S. government provided during the credit crisis has left financial institutions with huge cut-price loans that could harm banks' profits and economic growth once borrowing costs rise.

Banks that borrowed cheaply in the corporate bond market with a government guarantee will see their borrowing costs rise sharply once the debt matures, analysts said. That may swell bank expenses and constrain their ability to lend.

By some time in 2012, about $309 billion of government-guaranteed debt outstanding under the Temporary Liquidity Guarantee Program (TLGP) will mature. Banks will have to refinance with their own stand-alone debt and will likely pay bondholders much higher yields.

"The rise in debt costs...will implicitly reduce banks' ability to lend," said Tim Backshall, chief strategist with Credit Derivatives Research, LLC.

The Program was one of many emergency measures the government brought in at the height of the financial crisis in late 2008 to stop lending markets from freezing up and prevent the financial system imploding.

Like other government stimulus programs, it has gone from reassuring financial markets to worrying them as investors await their eventual demise.

[Cheap_Hessian]

Ping!

[dennisw]

By some time in 2012, about $309 billion of government-guaranteed debt outstanding under the Temporary Liquidity Guarantee Program (TLGP) will mature
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What does 0bongo care?
He won’t be running by then...claiming exhaustion and health reasons but his polls will be lower than Death Valley