Banks could face £70bn debt bill

[formercia]

Source: BBC

Leading UK and European banks may be forced to pay out as much as £70bn ($142bn) over the next 10 days as the global credit crunch continues to bite.

The banks may have to pay out that sum if investors, such as pension funds, decline to buy the banks' latest debt issues which are now due for renewal.

Analysts say investors are reluctant to buy the new debt until the full impact of the US home loans crisis is known.

With fewer buyers for the debt, banks may have to refinance it themselves.

Banks' cash flow

Officially called "commercial paper", banks use the issuing of such short-term debt to help boost their day-to-day working funds or cash flow.
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Read more: http://news.bbc.co.uk/2/hi/business/6986777.stm

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Who gets caught without a chair when the music stops?

[saigon68]

1. lol

[maxsolomon]

3. don't laugh so soon

eventually, the middle class gets the bill.

[TexasLawyer]

2. US banks also face big worries

especially considering off-balance sheet conduit obligations.

The real reason to worry about bank conduits
By Peter Thal Larsen

Published: September 9 2007 15:39

In a crisis, big numbers can look frightening. And amid the current turmoil, there are few figures bigger than the total assets that the world’s banks have parked in off-balance sheet vehicles.

These structures, known as conduits, have become the focus of the liquidity squeeze roiling the banking sector. Fitch, a ratings agency, reckons bank-sponsored conduits hold assets worth about $1,400 bn (£693bn).

Given that most of this has in the past been funded by buyers of asset-backed commercial paper, and given that a large proportion of those investors have gone on strike and show no sign of returning in the near future, it seems reasonable to ask: could the banking system really absorb all those assets?

The answer is a qualified “yes”. But unwinding the great conduit caper could still have far-reaching economic consequences.

<snip>

http://www.ft.com/cms/s/0/2f3d9472-5ee1-11dc-837c-0000779fd2ac.html