3 ms·
So, the solution to bad assets is more debt? How are the banks going to cover that debt when their customers are fleeing and interest rates are rising? I fear
by bcrl 4y ago
So, the solution to bad assets is more debt? How are the banks going to cover that debt when their customers are fleeing and interest rates are rising? I fear this is only kicking the can down the road by a few months (or years) before even worse fallout occurs when the failed banks have to make substantially larger interest payments.
Edit: a better term might be Zombie Banks.
- mnky9800n 4y agoWelcome to Japan circa 1990s which is now why Japan has the economy it does today.
- gizmo 4y agoThe idea is that when customers know a bank has effectively an unlimited line of credit to pay for outflows that there is no reason to panic. Conceptually, the credit line works perfectly even if it's never used. I agree it's not a solution, but it's smart and effective stopgap measure.
- HDThoreaun 4y agoWhy would customers flee if there's no risk of the bank running out of money?
- hmoodie 4y agoIn a constant intereest rate environment the bonds' market value will tend towards par value the closer they get to maturity