A new report from Moody’s is testing the mettle of banking bulls (admittedly, already a small club). The ratings agency estimates that the average maturity of new debt issued by banks has fallen sharply in recent years, from 7.2 years in 2005 to 4.7 years so far in 2009. Some US$10trn in debt will come due between now and 2015 for the banks that Moody’s rates; the true figure for all banks is even higher.

A shorter maturity profile leaves lenders more “vulnerable to a sudden increase in interest rates and/or to swings in investor confidence,” Moody’s says. This problem is particularly acute in the US and UK, where the average maturity over the past five years has fallen from 7.8 to 3.2 years and from 8.2 to 4.3 years, respectively. (Moody’s chart for the US is below.)

As rates rise from historic lows and governments pare back support to the financial sector, borrowers looking to extend debt maturities will face steeper funding costs. The banks that cannot pass these costs on to customers will either take a hit to margins or be forced to shrink their assets.

Moodys bank debt