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Moody’s Global
Special Comment Banking
November 2009

Table of Contents: Banks' Wholesale Debt


Summary Opinion 1
Importance of Conducting Comprehensive
Scenario Analysis 3
Maturity Profiles Shorten,
Dimensioning Banks’ Wholesale Debt
Maturity Profiles 3 Exposing Many Banks to
Sources of Pressure on Banks’ Funding
Costs
Likely Response from Banks
8
13
Refinancing Risks
Annex 1 16
Annex 2 30
Moody’s Related Research 31
Summary Opinion
In this report, we analyze recent changes in the funding profile of banks. We
Analyst Contacts: observe that a shortening of on-balance sheet wholesale debt maturities in recent
years has occurred across individual banking institutions and across several
New York 1.212.553.1653 banking systems globally. Banks whose debt maturity profiles have shortened
Jean-Francois Tremblay substantially will face relatively large refinancing needs in the coming years,
Vice President exposing them to greater funding pressures and increased costs, especially as
Marc Pinto governments attempt to exit support programs.
Senior Vice President
More specifically, we note that average maturities of new debt issuances rated by
Gregory W. Bauer
Moody’s – which we use as an indicator of general trends -- fell from 7.2 years to
Group Managing Director
4.7 years globally over the last five years. This is the shortest average maturity for
London 44.20.7772.5454 new debt at any given point during the 30 years of bank funding history covered by
Alain Laurin our analysis. As a related matter, we estimate that banks that we rate will face
Senior Vice President maturing debt of about $10 trillion between now and the end of 2015, $7 trillion of
which will occur by the end of 2012 1 .
Johannes Wassenberg
Team Managing Director
We also observe that this trend has been particularly pronounced in the United
Sydney 61.2.9270.8100 States and the United Kingdom, where the average maturity of newly issued rated
debt has fallen respectively from 7.8 to 3.2 years and from 8.2 to 4.3 years over
Patrick Winsbury
the last five years. As a result, Moody’s-rated banks in these two systems will be
Senior Vice President
challenged by more than $2 trillion of maturing debt between now and the end of
Singapore 65.6398.8308 2012.
Deborah Schuler
Our report provides detailed trend-related data on more than 25 banking systems
Senior Vice President
globally.

1
Because we do not rate all banks and all debt instruments, the total refinancing needs of banks globally is considerably larger.
Special Comment Moody’s Global Banking

Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
When a bank’s 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
bank’s 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 firm’s 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 bank’s
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 bank’s 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 unlikely 2 .

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 context 3 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 banks,
although 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, some
large banks have been able to issue long-term debt recently, while smaller ones have not. The vulnerabilities associated to the shortening of maturities may
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 in a
significant asset-liability mismatching. We also consider that the current context is characterized by an increasing rate of bad assets. Banks whose debt
maturity profiles have shortened but that are not affected by bad assets and by asset-liability mismatches would presumably be less, or not affected at all by
the phenomenon described in this report.

2 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

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

Importance of Conducting Comprehensive Scenario


Analysis
The financial crisis has drawn a lot of attention to the risks associated with banks’ assets. The relationship that
exists among a bank’s 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” -- under
various 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.

Moody’s 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 bank’s financial flexibility, identify
potential future vulnerabilities and guide our credit assessments. One of Moody’s principal aims in bank
analysis is to assess the institution’s 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 worthiness 4 .

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.

Abrupt Increase in Debt Issuance and Dramatic Fall in Average Debt


Maturities
5
We used the inventory of bank debt rated by Moody’s to develop an indicator of general trends 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 maturing
debt 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 Moody’s does not provide a statistically accurate sample of a
bank’s entire funding profile because we may not necessarily rate all debt instruments issued by a bank and/or we may not necessarily rate a representative
sample of all the banks in a given system. See Annex 2 for more information on the methodology supporting this indicator.

3 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Globally, average maturities of Moody’s-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, Moody’s-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).

Exhibit 1: Global Trends

Average Maturity and Aggregate Face Amounts of Moody's Rated


Global Debt Issuances
16.0 3,000,000

14.0
Average Maturity (Years)

2,500,000

Debt Issued (USD MIL)


12.0
2,000,000
10.0

8.0 1,500,000

6.0
1,000,000
4.0
500,000
2.0

0.0 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
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 Moody’s 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 Moody’s 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

4 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

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

Exhibit 2: United States Trends

Average Maturity and Aggregate Face Amounts of Moody's Rated


United States Debt Issuances
18.0 800,000

16.0 700,000
Average Maturity (Years)

14.0
600,000

Debt Issued (USD MIL)


12.0
500,000
10.0
400,000
8.0
300,000
6.0
200,000
4.0

2.0 100,000

0.0 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
Avg Maturity Per Year Face Amount of Wholesale Funding Issued
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 Moody’s-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.

5 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Exhibit 3: United Kingdom Trends

Average Maturity and Aggregate Face Amounts of Moody's Rated


United Kingdom Debt Issuances

20.0 450,000

18.0 400,000
16.0
Average Maturity (Years)

350,000

Debt Issued (USD MIL)


14.0
300,000
12.0
250,000
10.0
200,000
8.0
150,000
6.0

4.0 100,000

2.0 50,000

0.0 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
Avg Maturity Per Year Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding Country Average

In terms of upcoming maturities, about $650 billion of Moody’s-rated UK bank debt will come due by the end of
2012.

United Kingdom
Maturity Year Face Amt (USD MIL)
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.

6 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Exhibit 4: Eurozone Trends

Average Maturity and Aggregate Face Amounts of Moody's Rated


Eurozone Debt Issuances
12.0 1,200,000

10.0 1,000,000
Average Maturity (Years)

Debt Issued (USD MIL)


8.0 800,000

6.0 600,000

4.0 400,000

2.0 200,000

0.0 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
Avg Maturity Per Year Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding System Average

EuroZone
Maturity Year Face Amt (USD MIL)
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 Diversity Across and Within Systems


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 evenly
distributed.

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.

7 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

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

Sources of Pressure on Banks’ Funding Costs


1 – Banks Need to Extend their Debt Maturity Profiles by Issuing
More Long Term Debt

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

8 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Exhibit 5: Current Yield 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)
12
Ba-rated bank debt
10 5-yr=9.71%, 10-yr=10.59%
Yield (%)

8 Baa-rated bank debt


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

6 A-rated bank
5-yr= 4.76%, 10-yr=6.24%
4
Any bank issuing 2-yr
2 government-guaranteed debt
U.S. Treasury Yield Curve
(Aaa) = 1.33%
0
1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr
Debt Maturities

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, the
possibility 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.

9 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Exhibit 6: Historical Yield Trends

historical Yield Trends


20
18
16
14
12
Yield (%)

10
8
6
4
2
0

01 06 11 04 09 02 07 12 05 10 03 08 01 06 11 04 09 02 07 12
8 2 - 8 3 - 8 4 - 8 6 - 8 7 - 8 9 - 9 0 - 9 1 - 93 - 9 4 - 9 6 - 9 7 - 9 9 - 0 0 - 0 1 - 0 3 - 0 4 - 0 6 - 0 7 - 08 -
1 9 1 9 1 9 1 9 1 9 1 9 1 9 1 9 1 9 1 9 1 9 19 1 9 2 0 2 0 2 0 2 0 2 0 2 0 2 0
Period
3-month Treasurys 10-year Treasurys 30-yr fixed rate conventional home mortgage

3 - Withdrawal 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 between
2012 or 2014 in most countries (see Exhibit 7).

Exhibit 7: Expiration of Government Guarantees of Bank Debt

Scheduled Expiration of Government Debt Guarantee Programs


in Selected Countries
Deadline for Issuing Guaranteed Debt
Country Under 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

10 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

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

Scheduled Expiration of Government Debt Guarantee Programs


in Selected Countries
Sweden Oct 31, 2009 Oct 31, 2014
UK Dec 31, 2009 Apr 9, 2014
US Main program ended on Oct 31, 2009 - Emergency Dec 31, 2012
Facility to end April 30, 2010

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 Moody’s Aaa-rated unsecured debt as of June 2009 had jumped to
6
45% from 12% relative to total debt volume, thanks to government backing . Over $600 billion in
7
guaranteed debt has been issued by 118 entities in the US alone .

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
8
also to develop a new liquidity supervisory framework . 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 Supply


of 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 large
amounts 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
9
between now and the end of 2015, $7 trillion of which will occur by the end of 2012 .

6
This trend has been fading since the US government announced in the spring that issuing debt without government support is a condition to repaying TARP
capital injections and being relieved from the associated restrictions on compensation and share buybacks, among others.
7
About $300 billion of U.S. government-guaranteed debt was still outstanding at the time of writing this report.
8
See “New FSA rules on Bank Liquidity Positive for Credit of Banks, Government and MDBs”, October 2009 (120567), and “Preliminary Assessment of the
Obama 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.

11 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
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
10
borrowings .

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
11
recent report , 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.

12
To use the US banking system as an example , 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 in
credit 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, cause
losses and undermine investor confidence.

10
For instance, see Bloomberg article of October 26, “Treasury plans to lengthen the average due date of its outstanding debt”, which it is reported that “after
selling $1.9 trillion of short-term securities to finance President Barack Obama’s efforts to end the worst recession since the 1930s, the Treasury plans to
lengthen 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-year
bonds by 40 percent over the next year to $600 billion…”
11
See 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.

12 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

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

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 by
pushing 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,
13
which might further contribute to undermine a bank’s credit worthiness .

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 fierce
competition 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 effects
discussed above. However, hedges are not risk free, as their efficiency depends on the particular triggers that are in place under a swap agreement as well
as on the creditworthiness of counterparties.

13 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
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 time
and 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 Between Rate Increases, Competitiveness and Asset Quality


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 bank’s 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.

Exhibit 8: Historical Trends of Household Debt Servicing (interest-only


Payments)

U.S. Household Debt Servicing Payments


20
18
% of Disposable Income

16
14
12
10
8
6
4
2
0
q1

q4
q1

q2

q1

q4

q1
q4

q1

q4
q1

q4
q1

q4

q1
q4

q1
q4

q1

q4
80

81

83

84

86
87

89
90

92

93

95

96
98

99

01
02

04
05

07

08

Period
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

14 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

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

Alternative: Managing Down 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 themselves
in 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.

15 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

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

Annex 1
Trends in average bank debt maturities in selected banking systems 14

AUSTRALIA

Average Maturity and Aggregate Face Amounts


of Moody's Rated Australia Debt Issuances
14.0 160,000 Australia
12.0 140,000 Maturity Year Face Amt (USD MIL)

Debt Issued (USD MIL)


Average Maturity (Years)

120,000 2009 95,362


10.0
100,000 2010 63,837
8.0
2011 79,818
80,000
6.0 2012 70,289
60,000
4.0 2013 49,296
40,000
2014 63,593
2.0 20,000
2015 12,938
0.0 0
Total 435,133
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009

Avg Maturity Per Year


Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding
Country Average

AUSTRIA

Average Maturity and Aggregate Face Amounts


of Moody's Rated Austria Debt Issuances Austria
14.0 100,000 Maturity Year Face Amt (USD MIL)
90,000
2009 28,627
12.0
Average Maturity (Years)

2010 30,682
Debt Issued (USD MIL)

80,000
10.0 70,000 2011 51,608
60,000 2012 41,472
8.0
50,000 2013 52,671
6.0 40,000 2014 25,923
4.0 30,000 2015 22,662
20,000
2.0 Total 253,645
10,000
0.0 0
1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2009

Avg Maturity Per Year


Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding
Country Average

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

16 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

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

BELGIUM

Average Maturity and Aggregate Face Amounts


of Moody's Rated Belgium Debt Issuances
Belgium
14.0 25,000
Maturity Year Face Amt (USD MIL)
Average Maturity (Years)

12.0
20,000 2009 3,655

Debt Issued (USD MIL)


10.0 2010 13,130
8.0 15,000 2011 3,650

6.0 2012 3,149


10,000
2013 1,491
4.0
5,000
2014 1,775
2.0 2015 406
0.0 0 Total 27,255
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009

Avg Maturity Per Year


Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding
Country Average

BRAZIL

Average Maturity and Aggregate Face Amounts


of Moody's Rated Brazil Debt Issuances
10.0 12,000 Brazil
9.0 Maturity Year Face Amt (USD MIL)
Average Maturity (Years)

10,000
8.0 2009 830
Debt Issued (USD MIL)

7.0
8,000 2010 1,914
6.0 2011 1,202
5.0 6,000 2012 903
4.0 2013 424
4,000
3.0 2014 428
2.0 2015 100
2,000
1.0 Total 5,801
0.0 0
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009

Avg Maturity Per Year


Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding
Country Average

17 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

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

CANADA

Average Maturity and Aggregate Face Amounts


of Moody's Rated Canada Debt Issuances Canada
18.0 70,000 Maturity Year Face Amt (USD MIL)
16.0 2009 28,494
60,000
Average Maturity (Years)

14.0 2010 41,646

Debt Issued (USD MIL)


50,000
12.0 2011 29,544

10.0 40,000 2012 23,659


2013 18,157
8.0 30,000
2014 13,726
6.0
20,000 2015 8,715
4.0
Total 163,940
10,000
2.0

0.0 0
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009

Avg Maturity Per Year


Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding
Country Average

CHINA

Average Maturity and Aggregate Face Amounts


of Moody's Rated China Debt Issuances
12.0 180,000 China
160,000 Maturity Year Face Amt (USD MIL)
10.0
Average Maturity (Years)

140,000 2009 44,311


Debt Issued (USD MIL)

8.0 120,000 2010 47,156

100,000 2011 70,133


6.0 2012 65,161
80,000
2013 78,957
4.0 60,000
2014 56,906
40,000
2.0 2015 48,573
20,000
Total 411,196
0.0 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

Avg Maturity Per Year


Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding
Country Average

18 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

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

DENMARK

Average Maturity and Aggregate Face Amounts


of Moody's Rated Denmark Debt Issuances Denmark
20.0 35,000 Maturity Year Face Amt (USD MIL)
18.0 2009 16,823
30,000
Average Maturity (Years)

16.0 2010 25,875

Debt Issued (USD MIL)


14.0 25,000
2011 11,489
12.0 20,000 2012 18,152
10.0
2013 8,413
8.0 15,000
2014 4,585
6.0 10,000 2015 1,477
4.0
5,000 Total 86,813
2.0
0.0 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

Avg Maturity Per Year


Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding
Country Average

FINLAND

Average Maturity and Aggregate Face Amounts


of Moody's Rated Finland Debt Issuances Finland
16.0 8,000
Maturity Year Face Amt (USD MIL)
14.0 7,000 2009 3,632
Average Maturity (Years)

12.0 6,000 2010 3,553


Debt Issued (USD MIL)

10.0 5,000 2011 3,080


2012 1,573
8.0 4,000
2013 1,172
6.0 3,000 2014 1,984
4.0 2,000 2015 91

2.0 1,000 Total 15,083

0.0 0
1980
1982
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009

Avg Maturity Per Year


Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding
Country Average

19 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

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

FRANCE

Average Maturity and Aggregate Face Amounts


of Moody's Rated France Debt Issuances France
14.0 140,000 Maturity Year Face Amt (USD MIL)
2009 67,927
12.0 120,000
Average Maturity (Years)

2010 92,007

Debt Issued (USD MIL)


10.0 100,000
2011 95,490
8.0 80,000 2012 43,294
2013 42,336
6.0 60,000
2014 29,913
4.0 40,000 2015 24,706

2.0 20,000 Total 395,671

0.0 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

Avg Maturity Per Year


Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding
Country Average

GERMANY

Average Maturity and Aggregate Face Amounts


of Moody's Rated Germany Debt Issuances
9.0 600,000 Germany
8.0 Maturity Year Face Amt (USD MIL)
500,000
Average Maturity (Years)

7.0 2009 352,318


Debt Issued (USD MIL)

6.0 400,000 2010 361,686

5.0 2011 315,605


300,000 2012 304,954
4.0
2013 205,998
3.0 200,000
2014 185,085
2.0
100,000 2015 210,619
1.0
Total 1,936,264
0.0 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

Avg Maturity Per Year


Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding
Country Average

20 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

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

HONG KONG

Average Maturity and Aggregate Face Amounts


of Moody's Rated Hong Kong Debt Issuances
Hong Kong
12.0 6,000 Maturity Year Face Amt (USD MIL)
2009 747
Average Maturity (Years)

10.0 5,000
2010 249

Debt Issued (USD MIL)


8.0 4,000 2011 2,055
2012 459
6.0 3,000
2013 255

4.0 2,000 2014 835


2015 1,040
2.0 1,000 Total 5,639

0.0 0
1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

Avg Maturity Per Year


Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding
Country Average

ICELAND

Average Maturity and Aggregate Face Amounts


of Moody's Rated Iceland Debt Issuances Iceland
16.0 20,000
Face Amt (USD
14.0 18,000 Maturity Year MIL)
Average Maturity (Years)

16,000 2009 8,872


12.0
Debt Issued (USD MIL)

14,000 2010 10,893


10.0 12,000 2011 8,460
8.0 10,000 2012 6,349
6.0 8,000 2013 900
6,000 2014 548
4.0
4,000 2015 2,652
2.0 2,000
Total 38,674
0.0 0
1996
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008

Avg Maturity Per Year


Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding
Country Average

21 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

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

INDIA

Average Maturity and Aggregate Face Amounts


of Moody's Rated India Debt Issuances
India
14.0 12,000
Face Amt (USD
Maturity Year MIL)
Average Maturity (Years)

12.0 10,000
2009 2,103

Debt Issued (USD MIL)


10.0
8,000 2010 611
8.0 2011 1,343
6,000 2012 884
6.0
2013 614
4,000
4.0 2014 1,012
2,000 2015 558
2.0
Total 7,124
0.0 0
1985
1988
1989
1991
1993
1994
1995
1996
1997
1998
1999
2001
2002
2003
2004
2005
2006
2007
2008
2009

Avg Maturity Per Year


Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding
Country Average

IRELAND

Average Maturity and Aggregate Face Amounts


of Moody's Rated Ireland Debt Issuances
14.0 70,000
Ireland
Face Amt (USD
12.0 60,000 Maturity Year MIL)
Average Maturity (Years)

2009 39,989
Debt Issued (USD MIL)

10.0 50,000
2010 62,673
8.0 40,000
2011 25,477
6.0 30,000 2012 22,004

4.0 20,000 2013 4,995


2014 1,982
2.0 10,000
2015 7,219
0.0 0 Total 164,340
1982
1984
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009

Avg Maturity Per Year


Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding
Country Average

22 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

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

ITALY

Average Maturity and Aggregate Face Amounts


of Moody's Rated Italy Debt Issuances
Italy
25.0 140,000 Face Amt (USD
Maturity Year MIL)
120,000
Average Maturity (Years)

20.0 2009 61,093

Debt Issued (USD MIL)


100,000 2010 72,196

15.0
2011 85,750
80,000
2012 50,987
60,000 2013 33,224
10.0
2014 53,676
40,000
2015 25,128
5.0
20,000 Total 382,054

0.0 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

Avg Maturity Per Year


Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding
Country Average

JAPAN

Average Maturity and Aggregate Face Amounts


of Moody's Rated Japan Debt Issuances
10.0 250,000
Japan
9.0
Face Amt (USD
Maturity Year MIL)
Average Maturity (Years)

8.0 200,000
2009 31,973
Debt Issued (USD MIL)

7.0
2010 68,128
6.0 150,000 2011 73,736
5.0 2012 27,271
4.0 100,000 2013 29,838
3.0 2014 32,448

2.0 50,000 2015 10,509

1.0 Total 273,903

0.0 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

Avg Maturity Per Year


Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding
Country Average

23 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

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

KOREA

Average Maturity and Aggregate Face Amounts


of Moody's Rated Korea Debt Issuances Korea
18.0 450,000 Face Amt (USD
Maturity Year MIL)
16.0 400,000
Average Maturity (Years)

2009 60,359
14.0 350,000
2010 99,103

Debt Issued (USD MIL)


12.0 300,000
2011 104,567
10.0 250,000 2012 27,321
8.0 200,000 2013 33,169
6.0 150,000 2014 21,472

4.0 100,000 2015 8,964


Total 354,955
2.0 50,000

0.0 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

Avg Maturity Per Year


Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding
Country Average

LUXEMBOURG

Average Maturity and Aggregate Face Amounts


of Moody's Rated Luxembourg Debt Issuances
14.0 45,000
Luxembourg
40,000 Face Amt (USD
12.0
Average Maturity (Years)

35,000 Maturity Year MIL)


10.0 2009 14,228
Debt Issued (USD MIL)

30,000
2010 24,157
8.0 25,000
2011 13,799
6.0 20,000 2012 18,594

15,000 2013 9,300


4.0
2014 8,053
10,000
2.0 2015 9,086
5,000
Total 97,217
0.0 0
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009

Avg Maturity Per Year


Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding
Country Average

24 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

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

MALAYSIA

Average Maturity and Aggregate Face Amounts


Malaysia
of Moody's Rated Malaysia Debt Issuances
Face Amt (USD
14.0 4,000
Maturity Year MIL)
12.0 3,500 2009 1,247
Average Maturity (Years)

2010 1,422
3,000
10.0 2011 619

Debt Issued (USD MIL)


2,500 2012 947
8.0
2,000 2013 554
6.0 2014 1,244
1,500
2015 593
4.0
1,000 Total 6,626

2.0 500

0.0 0
1994
1997
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009

Avg Maturity Per Year


Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding
Country Average

NETHERLANDS

Average Maturity and Aggregate Face Amounts of


Moody's Rated Netherlands Debt Issuances
Netherlands
14.0 90,000
Face Amt (USD
80,000 Maturity Year MIL)
12.0
2009 75,353
Average Maturity (Years)

70,000
Debt Issued (USD MIL)

10.0 2010 58,480


60,000
2011 51,055
8.0 50,000 2012 51,194

6.0 40,000 2013 26,038

30,000 2014 48,774


4.0 2015 17,768
20,000
2.0
Total 328,661
10,000

0.0 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

Avg Maturity Per Year


Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding
Country Average

25 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

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

NORWAY

Average Maturity and Aggregate Face Amounts of


Moody's Rated Norway Debt Issuances
Norway
18.0 30,000
Face Amt (USD
16.0 Maturity Year MIL)
Average Maturity (Years)

25,000

Debt Issued (USD MIL)


14.0 2009 17,906
12.0 20,000 2010 17,593
10.0 2011 21,533
15,000
8.0 2012 8,583
6.0 10,000 2013 7,152
4.0 2014 7,735
5,000
2.0 2015 1,399

0.0 0 Total 81,901


1980
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009

Avg Maturity Per Year


Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding
Country Average

PORTUGAL

Average Maturity and Aggregate Face Amounts


of Moody's Rated Portugal Debt Issuances Portugal
12.0 80,000 Maturity Year Face Amt (USD MIL)
70,000 2009 470
Average Maturity (Years)

10.0
2010 10,285
Debt Issued (USD MIL)

60,000
2011 8,628
8.0
50,000 2012 14,568
6.0 40,000 2013 4,210
2014 9,327
30,000
4.0 2015 279
20,000
Total 47,766
2.0
10,000

0.0 0
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009

Avg Maturity Per Year


Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding
Country Average

26 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

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

SINGAPORE

Average Maturity and Aggregate Face Amounts


of Moody's Rated Singapore Debt Issuances
14.0 4,500
Singapore
Face Amt (USD
4,000
12.0 Maturity Year MIL)
Average Maturity (Years)

3,500 2009 2,072

Debt Issued (USD MIL)


10.0
3,000 2010 1,332
8.0 2,500 2011 3,718
2012 144
6.0 2,000
2013 1,176
1,500
4.0 2014 45
1,000
2015 9
2.0
500 Total 8,496
0.0 0
1986
1988
1989
1990
1992
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009

Avg Maturity Per Year


Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding
Country Average

SPAIN

Average Maturity and Aggregate Face Amounts


of Moody's Rated Spain Debt Issuances Spain
16.0 140,000 Face Amt (USD
14.0
Maturity Year MIL)
120,000
Average Maturity (Years)

2009 80,187
Debt Issued (USD MIL)

12.0
100,000 2010 75,884
10.0
80,000 2011 63,272
8.0 2012 100,487
60,000
6.0 2013 14,457
40,000 2014 18,471
4.0
20,000 2015 4,988
2.0
Total 357,745
0.0 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

Avg Maturity Per Year


Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding
Country Average

27 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

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

SWEDEN

Average Maturity and Aggregate Face Amounts


of Moody's Rated Sweden Debt Issuances
12.0 70,000 Sweden
10.0 60,000 Face Amt (USD
Maturity Year MIL)
Average Maturity (Years)

Debt Issued (USD MIL)


50,000
8.0 2009 33,014
40,000 2010 43,574
6.0
2011 37,576
30,000
4.0 2012 31,141
20,000
2013 8,507
2.0 10,000 2014 22,296
2015 4,493
0.0 0
Total 180,601
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009

Avg Maturity Per Year


Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding
Country Average

SWITZERLAND

Average Maturity and Aggregate Face Amounts


of Moody's Rated Switzerland Debt Issuances
14.0 14,000
Switzerland
Face Amt (USD
12.0 12,000 Maturity Year MIL)
Average Maturity (Years)

2009 6,390
Debt Issued (USD MIL)

10.0 10,000
2010 5,013
8.0 8,000 2011 2,634
2012 2,477
6.0 6,000
2013 3,446

4.0 4,000 2014 1,605


2015 872
2.0 2,000 Total 22,438

0.0 0
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009

Avg Maturity Per Year


Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding
Country Average

28 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

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

THAILAND

Average Maturity and Aggregate Face Amounts


of Moody's Rated Thailand Debt Issuances
Thailand
12.0 1,600 Face Amt (USD
Maturity Year MIL)
1,400
10.0 2009 350
Average Maturity (Years)

1,200

Debt Issued (USD MIL)


2010 943
8.0
1,000 2011 771
2012 588
6.0 800
2013 283
600 2014 199
4.0
400 2015 249
2.0 Total 3,383
200

0.0 0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009

Avg Maturity Per Year


Face Amount of Wholesale Funding Issued
MTN share of Total Wholesale Funding
Country Average

29 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

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

Annex 2
Information on our Indicator of General Trends Regarding Bank
Debt Maturity

The information used for this Special Comment and the accompanying tables of figures, charts and graphs
represents aggregated debt instruments’ information rated by Moody’s 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 III
debt 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.

30 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks
Special Comment Moody’s Global Banking

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

Moody’s Related Research

Rating Methodology
 Bank Financial Strength Rating Methodology, February 2007(102151)

Special Comment
 Moody’s 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, CREDIT
COMMITMENTS, 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 ADDRESS
ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS ARE NOT
STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS DO NOT CONSTITUTE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS
ARE NOT RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. CREDIT RATINGS DO NOT COMMENT ON THE SUITABILITY OF
AN 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, Moody’s Investors Service, Inc., and/or its licensors and affiliates (together, "MOODY'S”). All rights reserved. ALL INFORMATION CONTAINED
HEREIN 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 SUCH
PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR
WRITTEN CONSENT. All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of
human or mechanical error as well as other factors, however, such information is provided “as is” without warranty of any kind and MOODY’S, in particular, makes
no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such
information. Under no circumstances shall MOODY’S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting
from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY’S or any of its directors, officers,
employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such
information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if
MOODY’S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings and financial
reporting analysis observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not
statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS,
COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION
IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any
investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation
of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consider purchasing, holding or selling.
MOODY’S hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred
stock rated by MOODY’S have, prior to assignment of any rating, agreed to pay to MOODY’S for appraisal and rating services rendered by it fees ranging from
$1,500 to approximately $2,400,000. Moody’s Corporation (MCO) and its wholly-owned credit rating agency subsidiary, Moody’s Investors Service (MIS), also
maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist
between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in
MCO of more than 5%, is posted annually on Moody’s website at www.moodys.com under the heading “Shareholder Relations — Corporate Governance — Director
and Shareholder Affiliation Policy.”

31 November 2009  Special Comment  Moody’s Global Banking – Banks' Wholesale Debt Maturity Profiles Shorten, Exposing Many Banks to Refinancing Risks

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