A Fear of Big Demand for Corporate Loans

When times were sunny, banks promised scores of companies money for a rainy day. Now that day is here — and the banks, hard pressed themselves, are worried they will have to keep their promises.

With the economy struggling, some corporations are starting to tap so-called revolving lines of credit and other forms of backstop financing. If others rush to do the same, the banks might have to lend hundreds of billions of dollars at a time their own finances are stretched, forcing them to raise money to cover the loans.

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The potential exposure is enormous. Collectively, banks have pledged to lend companies more than $1 trillion. And because most of those loans have not been made yet, and many perhaps never will be, the banks have not accounted for them on their balance sheets.

“The fear here, of course, is what happens if they all hit on their revolver lines all at once?” said Neal Schweitzer, a senior vice president of Moody’s Investors Service, the ratings company. Banks might feel strained if they have to make even 20 percent of the loans they have promised.

NY Times