Bank Refi Risk

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BankingMoodys Global

Special Comment

Table of Contents:

Summary Opinion 1Importance of Conducting ComprehensiveScenario Analysis 3Dimensioning Banks Wholesale DebtMaturity Profiles 3Sources of Pressure on Banks FundingCosts 8Likely Response from Banks 13Annex 1 16Annex 2 30Moodys Related Research 31

Analyst Contacts:

New York 1.212.553.1653

Jean-Francois Tremblay

Vice President

Marc Pinto

Senior Vice President

Gregory W. Bauer

Group Managing Director

London 44.20.7772.5454

Alain Laurin


Johannes Wassenberg

Team Managing Director

Sydney 61.2.9270.8100

Patrick Winsbury


Singapore 65.6398.8308

Deborah Schuler


November 2009

Banks' Wholesale DebtMaturity Profiles Shorten,Exposing Many Banks toRefinancing Risks

Summary Opinion

In this report, we analyze recent changes in the funding profile of banks. We

observe that a shortening of on-balance sheet wholesale debt maturities in recen

years has occurred across individual banking institutions and across several

banking systems globally. Banks whose debt maturity profiles have shortened

substantially will face relatively large refinancing needs in the coming years,

exposing them to greater funding pressures and increased costs, especially as

governments attempt to exit support programs.

More specifically, we note that average maturities of new debt issuances rated by

Moodys which we use as an indicator of general trends -- fell from 7.2 years to4.7 years globally over the last five years. This is the shortest average maturity fo

new debt at any given point during the 30 years of bank funding history covered b

our analysis. As a related matter, we estimate that banks that we rate will face

maturing debt of about $10 trillion between now and the end of 2015, $7 trillion o

which will occur by the end of 20121.

We also observe that this trend has been particularly pronounced in the United

States and the United Kingdom, where the average maturity of newly issued rate

debt has fallen respectively from 7.8 to 3.2 years and from 8.2 to 4.3 years over

the last five years. As a result, Moodys-rated banks in these two systems will be

challenged by more than $2 trillion of maturing debt between now and the end of

2012.

Our report provides detailed trend-related data on more than 25 banking systems

globally.

1Because we do not rate all banks and all debt instruments, the total refinancing needs of banks globally is considerably larger.


2/312 November 2009 Special Comment Moodys Global Banking Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks

Special Comment Moodys Global Bank

Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks

When a banks wholesale debt profile becomes skewed towards short-term maturities, it becomes vulnerable

to a sudden increase in interest rates and/or to swings in investor confidence. Similarly, when a bank

increasingly relies on medium-term notes (MTN) or other such instruments that sometimes have a

comparatively long contractual maturity but feature periodic yield step-up, call or put options, it also increases

its exposure to a refinancing risk. This risk would materialize if any significant increase in market rates occurs

by the time these options are triggered. Both the shortening in contractual maturities of plain bonds and the

increased reliance on instruments with yield-reset features over time are part of the phenomenon we generally

describe in this report as the shortening of maturities in banks wholesale funding.

Driven by either internal risk management or regulatory considerations, we expect that affected banks will

want to extend their debt maturity profiles by replacing some of their short-term debt instruments and MTN-like

instruments with new, longer term wholesale debt in the coming months and years. However, spreads on long-

term corporate debt are already substantially wider than short-term debt currently, and it is probable that rates

will rise in the future when considering the historically low interest rates currently prevailing and some other

forces that may also push up rates, such as the imminent exit of government support to the financial sector

and the fact that these governments will also compete with banks for debt raising in order to finance their large

deficits. Therefore, funding costs would increase from the mere fact of moving out on the yield curve, with the

risk of funding costs being pushed up further by the rising tide of benchmark rates.

From an individual bank rating point of view, investors should not automatically associate the shortening of a

banks debt maturity profile -- and the related risk of an increase in its funding costs -- with a credit quality

concern because the net impact is largely bank specific and depends on several other factors. This must be

examined together with the firms overall business and risk management strategy, the size of wholesale debt

relative to its total funding, its asset-liability matching position, its ability to raise deposits or other forms of

financing, the extent of potential balance sheet reduction, and the quality of its assets. At the same, a banks

vulnerability to an increase in funding cost will also depend on external factors, such as whether an increase in

rates charged to customers reduces the banks competitiveness and whether government support is ultimately

extended or discontinued, as currently planned.

In a best-case scenario, affected banks would be able to replace maturing wholesale debt with an increase in

their deposit base and via securitization, but we believe that a one-to-one replacement rate at no incremental

cost is unlikely2.

Ultimately, the key question is to what extent these banks will be able to pass on increased funding costs to

customers as opposed to being forced to reduce margins or manage down their balance sheets. We note that

the debt maturity contraction phenomenon does not appear to affect all banks in a system, such that those that

are the most affected will be challenged to pass on the extra cost without losing market share. These banks

may have few options but to de-leverage and reduce the size of their asset pool.

At the same time, we believe there are important constraints that will require banks to be very careful as to

how to achieve a balance sheet contraction without undermining their financial health and overall franchise

value. Shrinking balance sheets in the current context3

has the potential to significantly constrain already thin

earnings and make several banks unprofitable for some time, which may ultimately erode capital if this results

in a proportionally greater share of bad assets. In a worse-than-expected scenario where the risks mentioned

above affect a large number of banks in a system, this could potentially generate a negative dynamic whereby

credit is increasingly squeezed and investor confidence is further weakened.

2 Anecdotally, we note that large banks, even in heavily affected systems, have been able to increase their deposit base more easily than smaller baalthough this often happened at an extra cost. There is a point where the elasticity of deposits can only be stretched via an increase in rates. Similarly, slarge banks have been able to issue long-term debt recently, while smaller ones have not. The vulnerabilities associated to the shortening of maturities be therefore particularly acute at small- and medium-sized banks.

3 This is particularly true for banks whose shortening of maturities was not accompanied by a parallel shortening in the asset maturities, which results significant asset-liability mismatching. We also consider that the current context is characterized by an increasing rate of bad assets. Banks whose dmaturity profiles have shortened but that are not affected by bad assets and by asset-liability mismatches would presumably be less, or not affected at athe phenomenon described in this report.





.

Importance of Conducting Comprehensive ScenarioAnalysis

The financial crisis has drawn a lot of attention to the risks associated with banks assets. The relationship that

exists among a banks asset quality and its profitability, capitalization and credit worth has perhaps never been

so scrutinized. Subjecting bank assets to scenario analysis -- commonly called stress testing -- undervarious macro and micro economic simulations is increasingly common, and the procedure is now part of

regulators toolkit. By contrast, following the provision of extensive government and central bank funding

programs, the liability side of banks balance sheets has received comparatively little attention, which we argue

must be as rigorously and holistically stress tested as the asset side.

Moodys adopts a comprehensive approach to scenario analysis. Our ratings are based on our expected, or

most probable, scenario, but we also use stress scenarios in order to test a banks financial flexibility, identify

potential future vulnerabilities and guide our credit assessments. One of Moodys principal aims in bank

analysis is to assess the institutions ability to finance itself under stress. This is a sensitive element because

access to market funding may not be based on long-term relationships, but can be based on perception of

credit worthiness4.

Dimensioning Banks Wholesale Debt Maturity Profiles Over the last decade or so, banks took advantage of stable, low interest rates (and a relatively flat yield curve)

to raise large amounts of funds via debt issuance and securitization, a key supporter of pre-crisis bank asset

growth. More significantly, however, managements aggressively sought to take advantage of low interest rates

to reduce their cost of funds in response to competitive pressure, with the result that banks shortened their

debt maturities during that period despite periods of relatively flat yield curves.

Abrup t I nc rease i n Deb t I ssuance and D ram at i c Fa l l i n Average Deb t

Ma tu r i t i es

We used the inventory of bank debt rated by Moodys to develop an indicator of general trends5

with respect

to debt issuance patterns across banking systems

Before the crisis, banks tended to issue two to three times more new debt than what came to maturity during a

given year, highlighting the rapid asset growth that occurred across banks and systems in recent years and

their active management of liabilities to lower funding costs. The trend towards shorter debt maturities

reflected banks increasing confidence in their market access as well as the availability of alternative funding

channels, notably through the use of securitization. It also appears that, presumably for similar reasons, banks

have increasingly relied on instruments with option features (step-up, call or put options) that expose the

issuer to periodic changes the risk being an increase -- in the rate they pay on their own debt (for the

purpose of our graph, we have generally referred to these instruments as medium-term notes, or MTN).

Following the crisis, the trend towards shorter maturities was exacerbated because banks were unable to

issue long-term debt under such turbulent conditions, or it was simply uneconomical to do so. The further

lowering of interest rates by central banks during the crisis, when combined with investors lack of confidence

and the short duration of government debt guarantee programs, pushed managements to roll over maturingdebt on even shorter terms than before.

This trend is particularly acute in some systems, whereas it is not observable in others.

Exhibit 1 shows the trends in banks wholesale debt profiles globally, while Exhibits 2 to 4 below show these

trends for banking systems that appear to be the most exposed to refinancing risks based on our indicator.

4 See Bank Financial Strength Rating Methodology (February 2007).5 We use the term indicator of general trends to highlight the fact that bank debt rated by Moodys does not provide a statistically accurate sample o

banks entire funding profile because we may not necessarily rate all debt instruments issued by a bank and/or we may not necessarily rate a representasample of all the banks in a given system. See Annex 2 for more information on the methodology supporting this indicator.
http://v3.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_102151http://v3.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_102151





Globally, average maturities of Moodys-rated debt issued by banks on a yearly basis fell from 7.2 years to 4.7

years over the last five years (as indicated by the bars on the chart left scale). During this five-year debt

maturity contraction period, Moodys-rated debt issued by banks reached $12 trillion in total (see line right

scale), the largest amount of on-balance sheet bank debt ever issued during such a short period. Additionally,

we also note that approximately half of these debt instruments have option features (see line MTN Share of

Total Wholesale Funding right scale).

Exh ib i t 1 : Globa l T rends

Average Maturity and Aggregate Face Amounts of Moody's Rated

Global Debt Issuances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Averag

eMaturity(Years)

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

DebtIs

sued(USD

MIL)

Avg Maturity Per Year Face Amount of Wholesale Funding Issued

MTN share of Total Wholesale Funding System Average

Further, maturity trends mean that banks will face a significant amount of maturing debt over the next few

years. The table below indicates how this translates for Moodys rated bank debt (i.e., actual numbers will be

considerably higher as we do not rate all firms and all debt in the banking universe).

Global

Maturity Year Face Amt (USD MIL)

2009 1,751,741

2010 1,783,065

2011 1,766,303

2012 1,546,481

2013 947,090

2014 916,713

2015 613,648

Total 9,325,040

While we recognize that banks were able to issue similar amounts of debt in the years prior to the crisis, the

current environment is fundamentally different and it will be substantially more difficult to raise similar amounts

of funds in a cost-neutral way.

For U.S. banks (Exhibit 2), the average maturity of newly issued debt rated by Moodys declined far more than

the global average, from 7.8 years in 2002 to 5.8 before the crisis in 2006, and down to 3.2 years in 2009. The

trend of the last three years has been towards substantially shorter instruments than the average maturity of

6.6 years that has been maintained by US banks over the last 29 years (horizontal line). MTNs represent a





significant portion of U.S. banks debt, but we note a decline from about 60% of total wholesale funding during

the period 1997-2004 to approximately 40% since 2005.

Exh ib i t 2 : Un i ted S ta tes T rends


United States Debt Issuances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

AverageMaturity(Years)

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

DebtIssued(USD

MIL)


MTN share of Total Wholesale Funding Country Average

The debt maturity contraction at US banks over recent years translates to significant amounts of debt maturing

over the next few years. The table below shows that more than $2 trillion of debt issued by Moodys-rated

banks will mature by the end of 2015, about $1.5 trillion of which will come due by the end of 2012.

United States

Maturity Year Face Amt (USD millions - rounded)

2009 473,000

2010 333,000

2011 347,000

2012 355,000

2013 191,000

2014 190,000

2015 115,000

Total 2,004,000

In the UK (Exhibit 3), our inventory of bank debt indicates that average debt maturity shortened from 11.3

years in 2001 down to 6.8 years in 2006, followed by a further decline to 4.3 years in 2009. Total amounts

issued also fell, although significantly less than in the U.S. during the same period, and MTNs represent the

lion share of wholesale funding.





Exh i b i t 3 : Un i t ed K i ngdom T rends


United Kingdom Debt Issuances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

1980

1981

1982

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009


0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

DebtIssued(USD

MIL)


MTN share of Total Wholesale Funding Country Average

In terms of upcoming maturities, about $650 billion of Moodys-rated UK bank debt will come due by the end of

2012.

United Kingdom


2009 140,280

2010 146,955

2011 192,574

2012 169,377

2013 86,116

2014 75,295

2015 36,647

Total 847,244

Banks in the Eurozone appear to fare relatively well (Exhibit 4), having kept average maturities above 5 years.

Nevertheless, we note a gradual shortening of maturities in recent years accompanied by a continued high

level of debt issuance, which translated into a significant amount of debt maturing by the end of 2012 ($3.1

trillion). Additionally, the share of MTNs in proportion to the total wholesale funding of banks in the Eurozone

has gradually increased to approximately 60% in recent years.





Exh ib i t 4 : Euro zone Trends


Eurozone Debt Issuances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1

980

1

981

1

982

1

983

1

984

1

985

1

986

1

987

1

988

1

989

1

990

1

991

1

992

1

993

1

994

1

995

1

996

1

997

1

998

1

999

2

000

2

001

2

002

2

003

2

004

2

005

2

006

2

007

2

008

2

009


0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

DebtIssued(USD

MIL)


MTN share of Total Wholesale Funding System Average

EuroZone


2009 782,149

2010 877,524

2011 771,628

2012 714,414

2013 416,996

2014 419,230

2015 337,339

Total 4,319,279

Great D ivers i t y Across and Wi th in System s

At the other end of the spectrum, there are systems where average maturities have either remained relatively

stable or have even increased. For instance, and as illustrated in Annex 1, our data indicates that banks in

Austria, Canada, China, Germany, India and Japan have not only maintained stable maturities above 5 years

over time (even during the crisis), the proportion of MTNs in relation to total wholesale funding is low and the

debt that is scheduled to mature over the next few years in these systems is relatively small and evenlydistributed.

Annex 1 also provides results for several other banking systems.

It is important to note that, anecdotally, we observe a great degree of variation among individual firms debt

profiles within each system, highlighting the fact that some firms may be more vulnerable than others,

including in systems that fared well on an aggregate basis. As such, we believe that competition within and

across systems may make it difficult for a bank that incurs a significant increase in its funding cost to fully pass

on the extra cost to customers. This is one of the reasons why we believe that banks debt maturity profiles

may be an important differentiating factor of competitiveness and credit quality. We discuss these reasons

below.





Sources of Pressure on Banks Funding Costs

1 Banks Need to Extend their Debt Maturity Profiles by I ssuing

More Long Term Debt

A debt profile skewed towards short-term maturities makes a bank vulnerable to market volatility, including anyincrease in benchmark government rates and/or swings in investor confidence. Similarly, if a banks wholesale

debt is composed of a significant portion of medium-term notes (MTN) or other such instruments that

sometimes have a long-term contractual maturity but feature periodic yield step-up, call or put options, these

debt instruments will also expose the firm to any significant change in rates. That being said, MTN programs

with long maturities, while exposing the issuer to rate increases, do have the advantage of mitigating the

market access risk.

For these reasons, banks whose debt profiles are heavily skewed towards the short end or heavily reliant on

MTNs will likely want to extend their debt maturity profiles by replacing some maturing debt with new, longer

term debt. If this initiative is not driven internally by banks risk management, regulators will most likely require

it.

In most systems, average maturities at banks over the last three decades were between six and eight years(see the yellow line on our banking system graphs left scale). As we assume that banks will want to restore

this average on their overall debt portfolio, we expect they will have to issue debt with significantly longer

maturities than they have in recent years, with significant amounts in the 7-to-10 year range, while minimizing

the proportion of MTNs in relation to their total wholesale funding. We also assume that some will also attempt

to reduce the proportion of wholesale funding to total funding, which we discuss further below.

2 The Extra Cost of Long-Term Debt

As for any issuer, when banks move out on the yield curve by issuing longer term debt, they typically face

wider spreads. This increase in spreads will be particularly acute for banks that shift from issuing short-term

debt under government-backed guarantee programs to issuing long-term debt on their own.

Exhibit 5 compares the yield that banks of varying credit quality would pay for issuing long-term debt in the

current environment. The spreads are based on the median market rates paid by banks around the world at

the end of October 2009.

For instance, it shows that a Baa-rated bank that issued short-term debt under a Aaa-rated government

guarantee program has been paying a coupon of about 1.3%, whereas it would have to pay 7.75% for issuing

a 10-year bond on its own today, a steep 645 basis point increase. The same move by a Ba-rated bank would

result in a 929 basis point increase.





Exh ib i t 5 : Cur rent Y ie ld Spreads

Cost of Funds Based on Credit Differentiation Once Bank Debt Is

Issued Without Government Support

(based on global median market-based spreads - October 2009)

0

2

4

6

8

10

12

1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yrDebt Maturities

Yield(%)

Ba-rated bank debt

5-yr=9.71%, 10-yr=10.59%

Baa-rated bank debt

5-yr=6.62%, 10-yr=7.75%

A-rated bank

5-yr= 4.76%, 10-yr=6.24%

U.S. Treasury Yield Curve

Any bank issuing 2-yr

government-guaranteed debt

(Aaa) = 1.33%

There is no single approach to determining what the yield curve might look like by the time a bank will replace

short-term with long-term debt. The shape of the yield curve will depend on a number of factors, including

investors expectations of future inflation and rates, supply and demand for various maturities and credit

quality, as well as on investors risk perception for the future.

That said, we would argue the risks are on the upside regarding future yields. Yields are currently at

historically low levels (see Exhibit 6), inflation expectations (supported by signals from central banks) are low,

and governments financial sector support may have toned down investors risk perception and reduced their

ability -- and need -- to differentiate on the basis of individual issuers intrinsic credit quality.

As government support is withdrawn and macro economic indicators start showing a risk of inflation, thepossibility of a reversal of the downward trend in yields that we have seen in the last few decades cannot be

excluded. A pronounced increase in benchmark interest rates could rise the tide for all market rates. Banks

that need to roll over debt at that time would face a steep increase in their cost of borrowing compared to the

current low-cost environment. This would be particularly challenging if such an increase in rates were to

happen by the end of 2012; that is, when banks maturing debt will be at its peak.





Exh ib i t 6 : H is tor i ca l Y ie ld T rends

historical Yield Trends

0

2

46

8

10

12

1416

18

20

1982

-01

1983

-06

1984

-11

1986

-04

1987

-09

1989

-02

1990

-07

1991

-12

1993

-05

1994

-10

1996

-03

1997

-08

1999

-01

2000

-06

2001

-11

2003

-04

2004

-09

2006

-02

2007

-07

2008

-12

Period

Yield(%)

3-month Treasurys 10-year Treasurys 30-yr fixed rate conventional home mortgage

3 - W ithdrawal of Government Support

The crisis led governments around the world to put in place a variety of programs to support financial markets,

stimulate the economy and revive investors and consumers confidence. One of the effects that these

programs have had, as we have discussed, was to shorten maturities. Another was to keep the rates that

banks pay to raise funds artificially low for an extended period and, thus, for a very large amount of debt. The

withdrawal of this support is imminent and will likely have an important impact.

The eligibility of banks around the world to issue new debt backed by government guarantees will expire in the

coming months, whereas the government guarantees on already issued debt will expire some time between2012 or 2014 in most countries (see Exhibit 7).

Exh ib i t 7 : Exp i r a t ion o f Governm ent Guarantees o f Bank Debt

Scheduled Expiration of Government Debt Guarantee Programsin Selected Countries

CountryDeadline for Issuing Guaranteed DebtUnder Domestic Program Deadline of Guarantee Coverage

Australia Not specified Rolling 5 years

Belgium Oct 31, 2009 Oct 31, 2011

Canada Dec 31, 2009 Apr 30, 2012

Denmark Dec 31, 2010 Dec 31, 2013

Finland Dec 31, 2009 Dec 31, 2014

France Dec 31, 2009 Dec 31, 2014

Germany Dec 31, 2009 Dec 31, 2014

Ireland Sep 29, 2010 Sep 29, 2010

Korea Dec 31, 2009 Dec 31, 2014

Netherlands Dec 31, 2009 Dec 31, 2014

New Zealand Not specified Rolling 5 years

Spain Dec 15, 2009 Dec 15, 2012





Scheduled Expiration of Government Debt Guarantee Programsin Selected CountriesSweden Oct 31, 2009 Oct 31, 2014

UK Dec 31, 2009 Apr 9, 2014

US Main program ended on Oct 31, 2009 - EmergencyFacility to end April 30, 2010 Dec 31, 2012

The impact that these programs had on banks access to markets (and debt issuance cost) has been

significant since their inception, and so should their removal.

For banks globally (but excluding US banks), the issuance of Aaa-rated government-backed unsecured

debt is up 23% while issuances without government backing are down 22%.

In the US, year-on-year bank-issued Moodys Aaa-rated unsecured debt as of June 2009 had jumped to

45% from 12% relative to total debt volume, thanks to government backing6. Over $600 billion in

guaranteed debt has been issued by 118 entities in the US alone7.

A number of other government programs have also contributed to maintain low rates. One such initiative has

been the purchase of agency mortgage-backed securities by central banks. These purchases have helped to

keep mortgage yields somewhat artificially low. The end of these programs will be a further source of upward

pressure on the borrowing cost of banks customers which, as we discuss further below, may affect asset

quality.

At the same time, the end of these support programs will also mark the entry of new rules that will likely put

banks earnings under greater pressure. Under the auspices of the Bank of International Settlement and the G-

20, regulatory authorities have agreed not only to increase the level and quality of capital requirements but

also to develop a new liquidity supervisory framework8. Although details are still being developed, these new

requirements are expected to contribute to reduce margins by forcing a greater share of bank funds to be

allocated to safe, low-return assets.

4 Convergence and the Potential for Demand to Test the Supplyof Funds

Moreover, we observe that banks, governments, and, to some extent, corporates appear to be set to issue

long term debt at approximately the same time.

The current patterns in the distribution of maturities within and across banking systems are such that there is a

convergence in the timing of refinancing needs among these stakeholders. To take a simplified example based

on our general trend indicator for the U.S. banking system; if the average maturity of newly issued debt at a

bank in 2007 was five years, a significant amount of debt will mature in and around 2012. In parallel, if the

average maturity of new debt issued in 2009 by the same bank was three years (roughly corresponding to the

expiration of the guarantee under the TLGP), it adds to the amount of debt maturing in and around 2012.

The fact that this phenomenon is common within and across several systems means that relatively largeamounts of debt will come due for refinancing this year and over the next three years, as indicated by the data

included in Annex 1 (tables). We estimate that banks that we rate will face maturing debt of about $10 trillion

between now and the end of 2015, $7 trillion of which will occur by the end of 20129.

6This trend has been fading since the US government announced in the spring that issuing debt without government support is a condition to repaying TAcapital injections and being relieved from the associated restrictions on compensation and share buybacks, among others.

7About $300 billion of U.S. government-guaranteed debt was still outstanding at the time of writing this report.

8See New FSA rules on Bank Liquidity Positive for Credit of Banks, Government and MDBs, October 2009 (120567), and Preliminary Assessment oObama Administration's Regulatory Reform Proposal, June 2009 (118193).

9 Because we do not rate all banks and all debt instruments, the total refinancing needs of banks globally should be substantially larger.
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Not only do bank refinancing requirements appear to converge around the same period -- that is, at a time

when most government debt guarantee programs are scheduled to expire, but this phenomenon also

coincides with the fact that governments are expected to significantly increase their own long-term

borrowings10

.

In addition, it is important to note that corporate debt has experienced a similar trend as bank debt in recent

years and these firms now also face the need to refinance maturing instruments. As we have discussed in a

recent report11

, close to $500 billion of rated bonds of U.S. non-financial corporates alone are still set to

mature through 2012, most of which affects investment-grade firms that will likely compete with banks and

governments to raise funds.

As for any tradable commodity, an increase in demand for long-term funds is expected to increase the cost of

supply in capital, which is, particularly now, a somewhat limited resource. Also, the convergence between the

refinancing needs of banks, governments and corporates may potentially have some crowding out effects.

Although it is impossible to quantify or predict the potential cost increase that might result from this

phenomenon, this situation further supports our thesis of rising funding costs for banks going forward.

5 The Expected Recognition of Further Losses in Coming

Quarters

Investors have returned to the market in 2009, providing significant amounts of funds, but this should not be

confused with a return to a normal operating environment. We believe that the thawing of debt and equity

markets was largely driven by calculated, opportunistic risk-taking in the context of the extraordinary support

provided by government programs and very low short-term interest rates. We would therefore not describe the

investor resurrection as a return to strong financial fundamentals in the markets.

In fact, we expect that credit-related losses to continue to cause damage to banks financials. In our view,

losses are still on a rising trend, mainly because of the delay that exists between the end of a recession and a

fall-off in provisions and actual charge-offs.

To use the US banking system as an example12

, banks have not provisioned for the full amounts of loan and

securities losses that we believe they will incur over the coming year, which we expect to reach $470 billion incredit costs by the end of 2010. Approximately only one quarter of this has been recognized to date and we

expect earnings to be insufficient to offset these costs during that period, resulting in many banks being

unprofitable.

The risk premium on bank debt is unlikely to fall in such a poor credit quality context. If anything, it may

actually increase, especially for long-term debt which already commands a significantly higher premium.

Additionally, a close look at recent results reported by banks in various systems reveals that asset quality

prospects for both consumer and commercial credits remain bleak.

Therefore, credit costs should continue to put banks earnings and profitability under considerable pressure,

which might cause investors to seek additional risk premia, as governments gradually exit from the direct

support they have so far provided. In other words, we see weaknesses on both sides of the balance sheet,

and we are concerned that the risks associated with both assets and liabilities may fuel each other, causelosses and undermine investor confidence.

10For instance, see Bloomberg article of October 26, Treasury plans to lengthen the average due date of its outstanding debt, which it is reported that aselling $1.9 trillion of short-term securities to finance President Barack Obamas efforts to end the worst recession since the 1930s, the Treasury planlengthen the average due date of its outstanding debt to 72 months from a 26- year low of 49 months. That may mean boosting sales of 10- and 30-ybonds by 40 percent over the next year to $600 billion

11See our September 2009 report U.S. Non-Financial Issuers' Debt Maturities to Soar in 2012 (119781).

12 See our updated Banking System Outlook for the United States, September 2009.
http://search.bloomberg.com/search?q=Barack+Obama%3Fs&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1http://www.bloomberg.com/apps/quote?ticker=USMKDEBT%3AINDhttp://v3.moodys.com/page/viewresearchdoc.aspx?docid=PBC_119781http://www.moodys.com/cust/getdocumentByNotesDocId.asp?criteria=PBC_117616http://www.moodys.com/cust/getdocumentByNotesDocId.asp?criteria=PBC_117616http://v3.moodys.com/page/viewresearchdoc.aspx?docid=PBC_119781http://www.bloomberg.com/apps/quote?ticker=USMKDEBT%3AINDhttp://search.bloomberg.com/search?q=Barack+Obama%3Fs&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1





6 Currency Volatility

Although we currently operate under the assumption that currency volatility will be temporary and manageable,

we cannot ignore the fact that the U.S. dollar has been under considerable pressure, which might have

negative consequences on funding costs and asset valuation, especially for non-U.S. banks. If a fall in the

dollar forces the Federal Reserve to increase rates, however, this might then affect U.S. banks negatively bypushing up benchmark rates.

At the end of October 2009, the value of the US dollar fell to a 14-month low relative to the euro, reaching

about 66 euro cents. This is a 4% drop in the value of the dollar since September 1, 2009 and a 7% drop so

far this year. The dollar also fell to its lowest level since August 2008 against other currencies, as illustrated

by the Dollar Index maintained by Intercontinental Exchange Inc.

The continued fall of the dollar is a reminder that, absent the effective use of hedging instruments, currency

devaluation may affect the reported results of firms.

For a foreign firm that holds significant amount of US-dollar denominated assets -- such as emerging market

financial institutions that tend to invest in US government instruments because of the lack of a liquid domestic

market a prolonged devaluation of the dollar may have negative consequences on earnings and capital,

which might further contribute to undermine a banks credit worthiness13.

It is also important to highlight that there may also be positive consequences for US firms that have sizeable

foreign operations. To the extent that the revenues of foreign subsidiaries are in a currency that has

appreciated relative to the US dollar, the profits that the parent will be able to repatriate once converted in US

dollars will be greater than would have otherwise occurred. This is particularly true for firms whose foreign

subsidiaries rely on US-based back office operations. This creates the winning combination of revenue

generation in a strong currency and operating expenses in a weaker one.

Going forward, investors will need to observe whether and how firms may change their behaviors, depending

on their expectations about the future direction of the dollar. For instance, should a further but temporary

decline be expected, US firms might decide to allocate a greater share of their investments into foreign assets

and/or more quickly repatriate foreign earnings, while foreign firms might decide to take advantage of their

stronger currencies to invest in US assets. But ultimately, firms profits or losses resulting from currency

fluctuation will depend on whether their expectations proved right.

More importantly, at some point, a continued fall in the dollar might also prompt the Federal Reserve to raise

the rates that the US government pays investors purchasing its debt in order to support the value of dollar.

This would in turn likely contribute to raise most other market rates, which we alluded to above.

Likely Response from Banks

Banks have limited options to deal with maturing debt. In a best-case scenario, banks would be able to replace

maturing on-balance sheet debt via cost-effective debt raises in the capital markets, as well as with an

increase in their deposit base and securitization, but we believe that a one-to-one replacement rate at no

incremental cost is unlikely. The size of the refinancing needs is significant and there is already fiercecompetition among banks for deposits; the elasticity of supply may only increase significantly at the cost of

deposit rate raises or other operating cost increases (e.g., for marketing, new services being added to basic

ones, lowering or elimination of some transaction fees). And securitization has only returned partially under

significant government support, which may soon be withdrawn. Cost-neutral replacement alternatives are

therefore limited.

In the context of increasing funding costs, managements at banks will either attempt to pass on the extra costs

to customers (corporate and retail) via loan rate increases or they will try to lighten their balance sheets by

13 Obviously, many firms rely on hedging tools, such as currency swaps, to mitigate the risk of currency fluctuations, which may neutralize the negative effdiscussed above. However, hedges are not risk free, as their efficiency depends on the particular triggers that are in place under a swap agreement as as on the creditworthiness of counterparties.





managing down the amount of new assets they generate (including cutting existing unutilized credit lines), or a

combination of both.

Technically, banks are able to re-price variable-rate assets earlier than when they are required to incur a cost

increase on their own liabilities. However, many banks in developed systems have sizeable fixed-rate assets

that may not be readily re-priced. Depending on the hedging strategies employed and on the extent of the

funding cost increase, this rigidity in asset pricing may make a fixed pool of assets unprofitable for some timeand may reduce their market value, which would effectively act as a drain on earnings from other, profitable

assets. Even for variable-rate assets, there are limitations to the extent to which they can effectively achieve

this without provoking negative feedback.

The Link Betw een Rate I ncreases, Com pet i t i veness and Asset Qual i t y

Too large and rapid an increase in loan rates may hurt demand for loans, thus constraining the ability to

originate new assets. The crystallization of this risk could be particularly acute if a banks competitors are not

as affected by the shortening of maturities and if they are free from the associated need to refinance at longer

maturities and therefore at higher costs. In such a context, an increase in rates by a bank might result in loss

of competitiveness, market shares and franchise value. These are important credit quality differentiation

factors.

Perhaps a more subtle -- but critically important -- credit quality concern also arises with broad-based

increases in the borrowing rates of customers. Demand for credit generally decreases when the cost of

borrowing reaches a certain level, especially when it is not accompanied by a corresponding increase in

borrowers income. Therefore, a generalized ramping up of rates by most banks in a system would likely

initially result in reduced growth and earnings. But worse, if the rise in customer rates is significant, leading to

more delinquencies, it would increasingly affect the quality of existing assets that are re-priced because

defaults would also increase.

In several countries, but particularly in economies such as the US and the UK, bank customers are already

stretched financially, with already high debt payments. As Exhibit 7 illustrates, debt servicing of US households

is historically high despite the relatively low interest environment.

Exh ib i t 8 : H is tor i ca l Trend s o f Household Debt Serv i c ing ( i n t eres t -on ly Payments )

U.S. Household Debt Servicing Payments

0

24

6

8

10

12

14

16

18

20

80q1

81q4

83q1

84q2

86q1

87q4

89q1

90q4

92q1

93q4

95q1

96q4

98q1

99q4

01q1

02q4

04q1

05q4

07q1

08q4

Period

%ofDisposableIncome

Total Mortgage Consumer

The share of both consumer debt and mortgage debt payments, measured as a proportion of disposable

income, steadily increased in the years leading to the crisis, and the recent modest inflexion triggered by the





crisis has yet to significantly relieve U.S. households from their debt burden. A similar patter is being observed

in several other systems.

The risk of increased default is particularly important in the current context, as asset quality is already under

significant pressure at most banks globally. Given that most are also already capital constrained, an increase

in defaults -- even a moderate one -- would add to the erosion of capital buffers. These are sensitive indicators

for investors that banks will be careful not to trigger.

In this context, any increase in defaults would extend net operating loss ratios, which might in turn fuel a

negative loop with regards to investor risk perception, interest rates paid by banks and, thus, customers.

Al tern at i ve : Managing Dow n Balance Sheet

Instead of trying to refinance the entire amount of debt that is about to mature, banks could attempt to manage

down their assets. By reducing new and existing assets, managements would be able to proportionally cut the

extra funding costs that they would otherwise incur.

However, this would also put earnings under pressure at a time when banks most need to increase their

stream of earnings in order to replenish their capital levels. To some extent, this situation can be viewed as a

race between earnings generation and declining capital needs (as the size of the balance sheet is reduced).

Therefore, banks that are facing substantial amounts of maturing debt in the coming few years find themselvesin a situation that will require a careful balancing act if they want to avoid falling into a liquidity and profitability

trap.

Banks that do not properly manage their liquidity and overall funding needs could see a rapid deterioration of

their competitiveness and/or an increase in non-performing loans, which could also affect their credit quality

and ratings. While we expect that most banks will be able to manage the transition well if the economy

continues healing and if benchmark rates remain relatively stable, we remain alert to any signal that would

suggest that these conditions are changing.





Annex 1

Trends in average bank debt maturities in selected banking systems14

AUSTRALIA

Average Maturity and Aggregate Face Amounts

of Moody's Rated Australia Debt Issuances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009


0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

DebtIssued(USDMIL)

Avg Maturity Per YearFace Amount of Wholesale Funding IssuedMTN share of Total Wholesale FundingCountry Average

Australia


2009 95,362

2010 63,837

2011 79,818

2012 70,289

2013 49,296

2014 63,593

2015 12,938

Total 435,133

AUSTRIA

Average Maturity and Aggregate Face Amountsof Moody's Rated Austria Debt Issuances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007


0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

DebtIssued(USD

MIL)


2009

14Banking systems are listed in alphabetical order. Global statistics, and data on the United States, the United Kingdom and the EuroZoare reported in the body of this report.

AustriaMaturity Year Face Amt (USD MIL)

2009 28,627

2010 30,682

2011 51,608

2012 41,472

2013 52,671

2014 25,923

2015 22,662

Total 253,645





BELGIUM


of Moody's Rated Belgium Debt Issuances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009


0

5,000

10,000

15,000

20,000

25,000

DebtIssued(USD

MIL)


Belgium


2009 3,655

2010 13,130

2011 3,650

2012 3,149

2013 1,491

2014 1,775

2015 406

Total 27,255

BRAZIL


of Moody's Rated Brazil Debt Issuances

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

AverageMaturity(Yea

rs)

0

2,000

4,000

6,000

8,000

10,000

12,000

DebtIssued(USD

MIL)


Brazil


2009 8302010 1,914

2011 1,202

2012 903

2013 424

2014 428

2015 100

Total 5,801





CANADA


of Moody's Rated Canada Debt Issuances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009


0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

DebtIssued(USD

MIL)

Avg Maturity Per Y earFace Amount of Wholesale Funding IssuedMTN share of Total Wholesale FundingCountry Average

Canada

Maturity Year Face Amt (USD MIL)2009 28,494

2010 41,646

2011 29,544

2012 23,659

2013 18,157

2014 13,726

2015 8,715

Total 163,940

CHINA


of Moody's Rated China Debt Issuances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1984

1985

1986

1987

1988

1989

1991

1992

1993

1994

1995

1996

1997

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009


0

20,000

40,000

60,000

80,000

100,000

120,000

140,000160,000

180,000

DebtIssued(USD

MIL)


China

Maturity Year Face Amt (USD MIL)2009 44,311

2010 47,156

2011 70,133

2012 65,161

2013 78,957

2014 56,906

2015 48,573

Total 411,196





DENMARK


of Moody's Rated Denmark Debt Issuances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

1982

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

DebtIssued(USD

MIL)


Denmark


2009 16,823

2010 25,875

2011 11,489

2012 18,152

2013 8,413

2014 4,585

2015 1,477

Total 86,813

FINLAND


of Moody's Rated Finland Debt Issuances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

1980

1982

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009


0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

DebtIssued(USD

MIL)


Finland


2009 3,632

2010 3,553

2011 3,080

2012 1,573

2013 1,172

2014 1,984

2015 91

Total 15,083





FRANCE


of Moody's Rated France Debt Issuances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009


0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

DebtIssued(USD

MIL)


France


2009 67,927

2010 92,007

2011 95,490

2012 43,294

2013 42,336

2014 29,913

2015 24,706

Total 395,671

GERMANY


of Moody's Rated Germany Debt Issuances

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009


0

100,000

200,000

300,000

400,000

500,000

600,000

DebtIssued(USD

MIL)


GermanyMaturity Year Face Amt (USD MIL)

2009 352,318

2010 361,686

2011 315,605

2012 304,954

2013 205,998

2014 185,085

2015 210,619

Total 1,936,264





HONG KONG


of Moody's Rated Hong Kong Debt Issuances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

198

2

198

5

198

8

199

1

199

4

199

7

200

0

200

3

200

6

200

9


0

1,000

2,000

3,000

4,000

5,000

6,000

DebtIssued(USD

MIL)


Hong Kong

Maturity Year Face Amt (USD MIL)2009 747

2010 249

2011 2,055

2012 459

2013 255

2014 835

2015 1,040

Total 5,639

ICELAND


of Moody's Rated Iceland Debt Issuances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

1

996

1

998

1

999

2

000

2

001

2

002

2

003

2

004

2

005

2

006

2

007

2

008


0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,00018,000

20,000

DebtIssued(USD

MIL)


Iceland

Maturity Year

Face Amt (USD

MIL)2009 8,872

2010 10,893

2011 8,460

2012 6,349

2013 900

2014 548

2015 2,652

Total 38,674





INDIA


of Moody's Rated India Debt Issuances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1985

1988

1989

1991

1993

1994

1995

1996

1997

1998

1999

2001

2002

2003

2004

2005

2006

2007

2008

2009


0

2,000

4,000

6,000

8,000

10,000

12,000

DebtIssued(USD

MIL)


India

Maturity Year Face Amt (USDMIL)

2009 2,103

2010 611

2011 1,343

2012 884

2013 614

2014 1,012

2015 558

Total 7,124

IRELAND


of Moody's Rated Ireland Debt Issuances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1

982

1

984

1

987

1

989

1

991

1

993

1

995

1

997

1

999

2

001

2

003

2

005

2

007

2

009


0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

DebtIssued(USD

MIL)


Ireland

Maturity YearFace Amt (USD

MIL)

2009 39,989

2010 62,673

2011 25,477

2012 22,004

2013 4,995

2014 1,982

2015 7,219

Total 164,340





ITALY


of Moody's Rated Italy Debt Issuances

0.0

5.0

10.0

15.0

20.0

25.0

1983

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009


0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

DebtIssued(USD

MIL)


Italy


2009 61,093

2010 72,196

2011 85,750

2012 50,987

2013 33,224

2014 53,676

2015 25,128

Total 382,054

JAPAN


of Moody's Rated Japan Debt Issuances

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

1980

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009


0

50,000

100,000

150,000

200,000

250,000

DebtIssued(USD

MIL)


Japan


MIL)

2009 31,973

2010 68,128

2011 73,736

2012 27,271

2013 29,838

2014 32,448

2015 10,509

Total 273,903





KOREA


of Moody's Rated Korea Debt Issuances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

1984

1985

1986

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009


0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

DebtIssued(USD

MIL)


Korea

Maturity Year

Face Amt (USD

MIL)

2009 60,359

2010 99,103

2011 104,567

2012 27,321

2013 33,169

2014 21,472

2015 8,964

Total 354,955

LUXEMBOURG


of Moody's Rated Luxembourg Debt Issuances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

DebtIssued(USD

MIL)


Luxembourg


MIL)

2009 14,228

2010 24,157

2011 13,799

2012 18,594

2013 9,300

2014 8,053

2015 9,086

Total 97,217





MALAYSIA


of Moody's Rated Malaysia Debt Issuances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1994

1997

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009


0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

DebtIssued(USD

MIL)


Malaysia


MIL)

2009 1,247

2010 1,422

2011 619

2012 947

2013 554

2014 1,244

2015 593

Total 6,626

NETHERLANDS

Average Maturity and Aggregate Face Amounts ofMoody's Rated Netherlands Debt Issuances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

A

verageMaturity(Years)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

D

ebtIssued(USD

MIL)


Netherlands


MIL)

2009 75,353

2010 58,480

2011 51,055

2012 51,194

2013 26,038

2014 48,774

2015 17,768

Total 328,661





NORWAY

Average Maturity and Aggregate Face Amounts of

Moody's Rated Norway Debt Issuances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

1980

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009


0

5,000

10,000

15,000

20,000

25,000

30,000

DebtIssued(USD

MIL)

Avg Maturity Per Y earFace Amount of Wholesale Funding IssuedMTN share of Total Wholesale FundingCountry Average

Norway


MIL)

2009 17,906

2010 17,593

2011 21,533

2012 8,583

2013 7,152

2014 7,735

2015 1,399

Total 81,901

PORTUGAL


of Moody's Rated Portugal Debt Issuances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009


0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

DebtIssued(USD

MIL)


Portugal


2009 470

2010 10,285

2011 8,628

2012 14,568

2013 4,210

2014 9,327

2015 279

Total 47,766





SINGAPORE


of Moody's Rated Singapore Debt Issuances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1986

1988

1989

1990

1992

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009


0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

DebtIssued(USD

MIL)


Singapore


MIL)

2009 2,072

2010 1,332

2011 3,718

2012 144

2013 1,176

2014 45

2015 9

Total 8,496

SPAIN


of Moody's Rated Spain Debt Issuances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

1982

1983

1986

1987

1989

1990

1991

1992

1993

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009


0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

DebtIssued(USD

MIL)


Spain


MIL)

2009 80,187

2010 75,884

2011 63,272

2012 100,487

2013 14,457

2014 18,471

2015 4,988

Total 357,745





SWEDEN


of Moody's Rated Sweden Debt Issuances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009


0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

DebtIssued(USD

MIL)


Sweden


MIL)

2009 33,014

2010 43,574

2011 37,576

2012 31,141

2013 8,507

2014 22,296

2015 4,493

Total 180,601

SWITZERLAND


of Moody's Rated Switzerland Debt Issuances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009


0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

DebtIssued(USD

MIL)


Switzerland


2009 6,390

2010 5,013

2011 2,634

2012 2,477

2013 3,446

2014 1,605

2015 872

Total 22,438





THAILAND


of Moody's Rated Thailand Debt Issuances

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009


0

200

400

600

800

1,000

1,200

1,400

1,600

DebtIssued(USD

MIL)


Thailand


MIL)

2009 350

2010 943

2011 771

2012 588

2013 283

2014 199

2015 249

Total 3,383





Annex 2

Information on our Indicator of General Trends Regarding BankDebt Maturity

The information used for this Special Comment and the accompanying tables of figures, charts and graphs

represents aggregated debt instruments information rated by Moodys Investors Service (Moodys) between

the years 1980 and 2009. This data was compiled from Moodys internal databases. For debt instruments

denominated in another currency than the U.S. dollar, the currency conversion was based on rates that

prevailed at the time of issuance.

Scope of the Data

Only debt information for banking institutions and bank-like institutions (e.g., thrifts, credit unions) was

included. The scope of the data was limited to debt unrelated to structured finance transactions.

The debt information used in this study includes instruments at all subordination levels issued in a given

system: Junior Subordinated, Senior Secured, Senior Subordinated, Senior Unsecured, Subordinated, Tier IIIdebt and certificates of deposit issued to institutional investors. Rated programs such as medium-term notes

were also included, as evidence suggests they have been heavily drawn by banks during the crisis. All types

of preferred stock were excluded.

Aggregation of the Data

All the aggregated information refers to the face amounts of the issuances at the time the instruments were

rated which is generally at the time of sale. Average maturities of wholesale debt issued in previous years are

weighted based on the number of issuances in a given year.

Projections regarding maturing debt in upcoming years are based on actual contractual maturity dates and

face amounts of every individual debt instrument and programs (no averaging) at the time of issuance. For

2009, the projections are for maturing debt between July 1 and December 31, 2009.

Limitations of the Data

The information used for this study is only an aggregation of bank debt instruments rated by Moodys and may

not be representative for all geographies referenced. While Moodys may have rated a sizable amount of the

bank debt issued over the last 29 years, the universe actual bank debt issued is larger. It should also be noted

that all amounts are face amounts of the debt instruments. They do not actually represent the amounts of the

debt that were allowed to mature, were refinanced, or defaulted on.

The data tables, graphs and charts used in this study are by no means meant to be a precise assessment of

bank debt issued or bank debt coming to maturity in the future. Instead, the data is meant to provide a

backdrop for an assessment of overall trends and patterns in bank debt issuances in a given system.


31/31



Moodys Related Research

Rating Methodology

Bank Financial Strength Rating Methodology, February 2007(102151)

Special Comment

Moodys Approach to Estimating Bank Credit Losses and their Impact on Bank Financial Strength ratings,

May 2009 (117326)

To access any of these reports, click on the entry above. Note that these references are current as of the date of publication

of this report and that more recent reports may be available. All research may not be available to all clients.

Report Number: 120846

Author Data Analyst Senior Production Associates

Jean-Francois Tremblay Robert Banarez Wing Chan

Cassina Brooks

CREDIT RATINGS ARE MOODY'S INVESTORS SERVICE, INC.'S (MIS) CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDITCOMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MIS DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL,FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESSANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS ARE NOTSTATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS DO NOT CONSTITUTE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGSARE NOT RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. CREDIT RATINGS DO NOT COMMENT ON THE SUITABILITY OFAN INVESTMENT FOR ANY PARTICULAR INVESTOR. MIS ISSUES ITS CREDIT RATINGS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH

INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

Copyright 2009, Moodys Investors Service, Inc., and/or its licensors and affiliates (together, "MOODY'S). All rights reserved. ALL INFORMATION CONTAINEDHEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED,FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCHPURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODYS PRIORWRITTEN CONSENT. All information contained herein is obtained by MOODYS from sources believed by it to be accurate and reliable. Because of the possibility ofhuman or mechanical error as well as other factors, however, such information is provided as is without warranty of any kind and MOODYS, in particular, makesno representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any suchinformation. Under no circumstances shall MOODYS have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resultingfrom, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODYS or any of its directors, officers,employees or agents in connection with the procureme

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