TBTF lenders pull in their horns as treasurers rationalize bank groups.
Treasurers seeking to rationalize their bank groups have found some of their legacy lenders reluctant to bid for ongoing business. These tend to be the too-big-to-fail banks that the government has bailed out and supported through its TARP, TLGP and other programs. One treasury consultant notes that firms that are currently rationalizing their banking relationships in the wake of the financial crisis typically do not want to restructure their groups again for a number of years, so banks that stick to the sidelines now will be unable to bid for that business for some time.
This is apparently a consequence of regulators’ insistence that TBTF banks boost capital and reduce leverage. It may also be that the net interest margin they reap from the historically steep yield curve makes them less willing to take credit risk—an unintended consequence of the Federal Reserve’s quantitative easing program, which could be worsened by its plan to boost the interest it pays on excess reserves to keep banks from lending against them.
Of course, there are still plenty of lenders eager to participate in strong companies’ bank groups. But those that are now sitting on their hands, for whatever reason, could regret the lost business later if and when their fortunes improve.