-
Policy
Policy
Exclusive interviews with leading policymakers that convey the true policy message that impacts markets.
LATEST FROM POLICY: -
EM Policy
EM Policy
Exclusive interviews with leading policymakers that convey the true policy message that impacts markets.
LATEST FROM EM POLICY: -
G10 Markets
G10 Markets
Real-time insight on key fixed income and fx markets.
Launch MNI Podcasts -
Emerging Markets
Emerging Markets
Real-time insight of emerging markets in CEMEA, Asia and LatAm region
-
Commodities
Commodities
Real-time insight of oil & gas markets
-
Credit
Credit
Real time insight of credit markets
-
Data
-
MNI Research
Actionable insight on monetary policy, balance sheet and inflation with focus on global issuance. Analysis on key political risk impacting the global markets.
-
About Us
To read the full story
Sign up now for free trial access to this content.
Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
Real-time Actionable Insight
Get the latest on Central Bank Policy and FX & FI Markets to help inform both your strategic and tactical decision-making.
Free AccessMNI EXCLUSIVE: US May Need New Tools in Bankruptcy Wave
U.S. policymakers may need a new set of tools to cope with a wave of bankruptcies including Treasury-backed Fed rescues and perhaps even outright capital infusions, policymakers and former central bank officials told MNI.
Sector-specific problems, most evident in Covid-hit industries like restaurants, entertainment and commercial real estate, could mount in ways that damage the banking system. U.S. corporate bankruptcies have already surpassed the 2008 total in terms of affected firms' total assets -- and summer's not even over.
The inability to process and digest a rush of conflicting and cascading debt claims all at once -- already a strain on the court system in normal times -- could also devolve into a crisis scenario faced with waves of Covid-led Chapter 11 filings, Randall Kroszner, a former Fed governor now at the Chicago Booth School, said in an interview.
"Policy should be focusing on the next wave of the economic consequences, the restructurings that will be necessary," said Kroszner. "The key here is to make sure that if there is a broad mass restructuring in a particular sector that that is contained to that sector and doesn't turn into a challenge for the broader financial system."
Role Reversal
That's a role reversal from the global financial crisis a decade ago where banks had to be rescued to keep credit flowing to sectors outside of the housing market. Fed Chairman Jerome Powell already warned in May that "avoidable household and business insolvencies can weigh on growth for years to come."
"We ought to do what we can to avoid these outcomes," he said.
The Fed may have some tools to address the problem, including the existing legal authority make sure banks can keep lending to "debtor-in-possession" entities in financial distress, those sources said.
The Fed's concerns about bankruptcies are part of a renewed focus on its emergency credit facilities, which itself stems from the realization that early optimism about the chances for a speedy recovery have now largely evaporated.
The limited use of the Fed's existing credit facilities to corporations, states and municipalities as well as small businesses--despite an explicit Treasury backstop of USD450 billion--hints at the troubles the Fed might face in dealing with any bankruptcy logjam.
Pain Only Delayed?
"The main difficulty is that banks don't really suffer from a lack of liquidity -- witness that even the [corporate credit] facility is not much used, and forget Main Street that has its own design problems," Roberto Perli, a former Fed board economist, told Market News.
"Why would they lend more, and to entities in bankruptcy, if the Fed made even more liquidity available, even very cheap?"
And some of the pain on corporations and households has been in many cases merely delayed by a USD2 trillion fiscal stimulus and the Fed's wide-ranging actions.
To read the full story
Sign up now for free trial access to this content.
Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.