| Summary: U.S. banks are overrun with cash. So they are loading up on debt. The six largest U.S. lenders have issued some $314 billion of bonds so far this year, already the most for any year since 2008, according to Dealogic. Banks are playing a greater role in propelling the corporate bond market, which has otherwise slowed from last years pandemic-induced debt bonanza. Financial institutions are the issuers behind more than a third of U.S. investment-grade debt so far this year, according to Dealogic, the highest share for any year going back to the dawn of the modern megabank. Banks Debt Sales Are Driving the Corporate Bond Market Financial institutions accountfor more than one-third of allthe investment-grade debtissued this year U.S. banks are overrun with cash. So they are loading up on debt. The six largest U.S. lenders have issued some $314 billion of bonds so far this year, already the most for any year since 2008, according to Dealogic. Since banks reported their third-quarter financial results earlier this month, Goldman Sachs Group Inc., Morgan Stanley and Bank of America Corp. have all come out with multibillion-dollar bond sales. In April, Bank of America and JPMorgan Chase & Co. completed the largest-ever bank debt sales.Banks are playing a greater role in propelling the corporate bond market, which has otherwise slowed from last years pandemic-induced debt bonanza. Financial institutions are the issuers behind more than a third of U.S. investment-grade debt so far this year, according to Dealogic, the highest share for any year going back to the dawn of the modern megabank. The record debt sales might seem unnecessary because banks are already up to their eyeballs in cash. The biggest consumer and commercial banks have collected trillions of dollars of deposits since the pandemic started.But deposits are only one part of the liability equation for the biggest banks. They are also required to keep a certain share of their liabilities in long-term debt. Because of that, the ratio of debt to other liabilities can get out of whack when deposits grow as much as they have. So banks are issuing more bonds to navigate the regulatory hurdles.But deposits are only one part of the liability equation for the biggest banks. They are also required to keep a certain share of their liabilities in long-term debt. Because of that, the ratio of debt to other liabilities can get out of whack when deposits grow as much as they have. So banks are issuing more bonds to navigate the regulatory hurdles. Questions: - Why are banks issuing bonds right now?
- What is regulators' rationale for requiring banks to maintain a certain level of long-term debt?
- Why have investors been willing to buy banks' bond offerings?
- Discuss the relationship between loan growth and deposit growth, as mentioned in the article.
|
