Universities and not-for-profit hospitals around the country that had entered into interest rate swaps have also been forced to post collateral.
Universities and not-for-profit hospitals around the country that had entered into interest rate swaps have been forced also to post collateral.
A few years ago, as Harvard was preparing to issue billions of dollars of debt to finance an ambitious building expansion, the university entered into interest rate swaps to lock in seemingly low interest rates.
Of those, the biggest is Zions Bancorporation of Salt Lake City, which sells more loans to Farmer Mac than any other lender and has entered into interest-rate swaps with Farmer Mac that, at current rates, favor Zions.
Although it is difficult to tally how many public entities entered into interest-reduction deals, a recent analysis by the Service Employees International Union estimated that over the last two years, state and local governments have paid banks that arranged these transactions $28 billion to get out of the deals, seeking to avoid further crushing payments.
They buy a corporate bond and enter into an interest-rate swap, paying a fixed rate and receiving the three-month London interbank rate (LIBOR) for the life of the bond.
Just doing that would have left the county at risk if interest rates surged, so JPMorgan also entered into an interest rate swap.
Pension funds, which have binding pension contracts entered into when interest was at much higher levels, need an 8% investment return to meet their commitments.
A 2007 report produced for the Treasury Committee noted that the MPC's independence of government "has reduced the scope for short-term political considerations to enter into the determination of interest rates".
