Net issuance of bank debt stands at $4.5bn so far this year, but is close to falling below zero after three consecutive months of negative net issuance, according to figures from Dealogic.
Indeed, net issuance of bank debt excluding covered bonds – debt secured against pools of loans that has been the mainstay of banks’ funding in recent months – is a negative $41bn.
“European financial institutions need to finance nearly €2,000bn over the next five-year horizon,” Deutsche Bank analysts wrote in a note to clients.
“Senior unsecured debt, which traditionally accounts for the vast majority of bank funding, totalled just $18.8bn for all of July and August, according to Moody’s Analytics. While covered bonds have so far filled the funding gap, there are regulatory and physical limits to issuance of this debt.
“Bank funding concerns in the very near term are less of an issue, but there are problems ahead, especially when looking at the roll-offs of guaranteed debt for next year,” says Suki Mann, credit strategist at Société Générale.
“With sovereign risks escalating, the market would balk at a guarantee from most sovereigns,” says Mr Mann. “That leaves a possibly expanded EFSF to come to the rescue. It might work for the first few banks which pull the trigger, but it will be no panacea.”