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THE ECONOMICS OF THE PRIVATE MARKET

Banks as Issuers of Debt

U.S. banks and bank holding companies are more active issuers in the private debt market. The IDD database lists 174 private debt issues by them during 1990-91, 97 unsecured and 77 secured, for a total of $8.43 billion (table 19). These issues were about 5 percent of all private debt issues in the database for the period.

About a third of banks' issuance was assetbacked debt, such as mortgage-backed or receivable-backed notes. According to remarks by market participants, many such issues would have been difficult to issue publicly. Either they were a new form of instrument (for example, some receivable-backed bonds) or they required a buyer to engage in extensive due diligence and monitoring (many second-mortgage-backed bonds).  As noted in part 1, the private placement market is a proving ground for new types of instrument. If no problems surface with a new instrument (and if extensive monitoring is not required), public market investors may eventually be willing to buy it. Thus the private placement market is important to banks and other financial institutions as an arena for testing some of their financial innovations.

Table 20 summarizes private debt issuance by foreign banks. The totals for unsecured debt are similar to those for U.S. banks, but foreign banks issued very little secured or asset-backed debt.

19. Private placements of debt issued by U.S. banks, 1990-91

Nature of instruments

Issues
Number Value
(millions of
dollars)
Miscellaneous unsecured bonds,
  notes, and debentures 
97 5,268.7
  Known senior 33 1,595.9
  Known subordinated 5 218.5
  Priority unknown 59 3,454.3
     
Asset-backed debt 77 8,429.6
  Mortgage-backed 54 1,973.2
  Receivable-backed 6 925.7
  Lease financing 2 86.4
  Collateral unknown 15 175.6
     
Total issues1 174 8,429.6
  1. One of 174 issues, for $114.6 million, was under Rule 144A. Sizes of individual issues ranged from $0.9 million to $400 million.

Source. IDD Information Services.

20. Private placements of debt issued by foreign banks, 1990-91

Nature of instruments

Issues

Number

Value
(millions of
dollars)
Miscellaneous unsecured bonds,
  notes, and debentures
92 4,880.0
  Known senior 25 772.2
  Known subordinated 15 1,316.9
  Priority unknown 52 2,790.9
     
Asset-backed debt 4 5,175.2
  Mortgage-backed 2 80.0
  Receivable-backed 1 130.2
  Collateral unknown 1 85.0
     
Total issues1 96 5,175.2
  1. Five of ninety-six issues, for $98.5 million, were under Rule 144A. Sizes of individual issues ranged from $0.6 million to $306.7 million.

Source. IDD Information Services.

Banks as Buyers of Private Placements

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