The New York Times is warning on a second round of financial crises. In Crisis Awaits World’s Banks as Trillions Come Due it is revealed globally banks owe $5 trillion dollars in short terms loans that either must be repaid or rolled over.
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.
The article implies the Financial Armageddon can was simply kicked down the road.
The practice of short-term borrowing and long-term lending contributed to the near-collapse of the world financial system in late 2008 when short-term financing dried up. Banks suddenly found themselves starved for cash, and some would have collapsed without central bank support.
Government bank guarantees extended in response to the crisis also inadvertently encouraged short-term lending. The guarantees were typically only for several years, and banks issued bonds to match.
The article goes on to quote the Bank of International Settlements, implying everything is under control (paraphrase) with another statement on whether the European Central Bank wants to continue to prop up some of the European banks or not.
h/t to Calculated Risk.