New bank crisis looms in Europe, US

The sovereign debt crisis would seem to create worry enough for European banks, but there is another gathering threat that has not garnered as much notice: the trillions of dollars in short-term borrowing that institutions around the world must repay or roll over in the next two years.

The sovereign debt crisis would seem to create worry enough for European banks, but there is another gathering threat that has not garnered as much notice: the trillions of dollars in short-term borrowing that institutions around the world must repay or roll over in the next two years.

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The European Central Bank, the Bank of England and the International Monetary Fund have all recently warned of a looming crunch, especially in Europe.

Their concern is that banks hungry for refinancing will compete with governments — which also must roll over huge sums — for the bond market's favour. As a result, credit for business and consumers could become more costly and scarce, with unpleasant consequences for economic growth.

There is a cliff we are racing toward — it's huge," said Richard Barwell, an economist at Royal Bank of Scotland. No one seems to be talking about it that much." But, he added, it's of first-order importance for lending and output."

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.