US banks take $280bn onto books

Despite all the orchestrated efforts around the globe from central banks, regulators, politicians etc. the party or orgy :-) is over. The cracks are so obvious that no matter what kind of "bailout" attempt will happen next the real economy will take a significant hit. The times of easy credit are over. I think the biggest fear now is that the creditors will overshoot to the other side. The fact that foreigners are less willing to finance US assets will intensify this trend. I also recommend the excellent piece from Brad Setser The US trade deficit is falling, but not as fast as the world’s demand for US debt.

Trotz der konzertierten weltweiten Aktionen von den Zentralbanken, Aufsichtsbehörden, Politikern etc sind die Zeichen nicht zu übersehen das die Party oder Orgie :-) zu Ende ist. Die Einschläge sind so massiv das ganz egal was noch an neuen "Bailout" Versuchen auf die Agenda kommt die reale Wirtschaft darunter zu leiden haben wird. Die Zeiten des einfachen Zugangs zum Kreditmarkt sind Geschichte. Die größte Sorge die momentan vorherrscht ist sicher das die Kreditgeber von einem Extrem ins andere wechseln und es den Zugang über Gebühr erschweren. Die Tatsache das ausgerechnet jetzt die Ausländer aufwachen und immer weniger US Anleihen erwerben wird diesen Trend nur noch verstärken. Zu diesem Thema solltet ihr ebenfalls die Meinung von Brad Setser lesen The US trade deficit is falling, but not as fast as the world’s demand for US debt.

Banks’ debts threaten growth / FT

Big US commercial banks have seen $280bn of new debt come on to their balance sheets since the credit squeeze, threatening to undermine economic growth by inhibiting their ability to make new loans.

The banks have been forced to take on to their books large amounts of commercial paper and leveraged loans after investor demand for such assets dried up in the summer.

David Rosenberg, economist at Merrill Lynch, said that this amount had risen to $280bn since the start of August.

He added that according to data from the Federal Reserve, large bank capital – represented by net assets – had declined by $40bn since the beginning of August. “This has never happened before over such a short timeframe and this is rather serious because such a steep and sudden compression in large-bank capital has the potential to create a negative lending environment,” he said.

If left unchecked, this could “significantly inhibit” economic growth, he added.

> via Minyanville The Bernanke Put Defined

"Access to a backstop source of liquidity in turn reduces the incentives of banks to limit the credit they provide to their customers and counterparties."

Read that statement carefully. It's the one key sentence in the entire speech.

The misunderstanding that is perpetuated is that the Fed by "providing liquidity" is not actually "providing credit."

What Bernanke's statement means is that, in reality, the two are synonymous.

European banks are facing similar pressures with many observers expressing concern at the ability of some smaller lenders to handle the potential strain on their balance sheets.

Fears over the effect of the credit squeeze on US bank balance sheets was one factor behind the US Treasury’s encouragement of the creation of a "super fund" to take on the assets of troubled investment vehicles.

The three top US banks – Citigroup, JPMorgan Chase and Bank of America – this week unveiled plans for a fund that would buy up to $100bn of mortgage-backed assets from structured investment vehicles.

Citigroup, which manages $80bn of assets in such vehicles, has bought some of the vehicles’ commercial paper.

On Monday, Citi said it was suspending share buy-backs because its capital ratios had weakened partly due to the large amount of commercial paper and leveraged loans it had taken on.

According to Moody’s, the credit rating agency, assets held by bank-sponsored special investment vehicles fell to $320bn from $395bn in July.

“The large banks have been forced to take commercial paper back on their balance sheets and as a result are choking on assets they did not plan on having – thereby tying up regulatory capital and in turn possibly leading to a reduction in credit extension,” said Mr Rosenberg.

He pointed out that 30 per cent of the growth in the debt that US households took on was backed by asset-backed investors.