The credit deterioration as a result of the deepening economic slump over the past several months is taking an increasing toll on bank balance sheets, according to the International Monetary Fund [IMF].
In its semiannual Global Financial Stability Report [GFSR] released today (Tuesday), the IMF said that the global financial sector faces write-downs of $4.1 trillion on some $58 trillion of assets originated in the U.S., Europe, and Japan. The Fund also said that it had increased its estimate of the potential losses in the United States from $2.2 trillion to $2.7 trillion (U.S. bank losses at the end last fiscal yr. totaled $510 bln. Additional writedowns of $550 bln are expected through 2010).
The $4.1 trillion estimate is the first by the IMF to include loans and securities originating in Europe and Japan which will total approximately $1.3 trillion.
In its first comprehensive study of the impact of the crisis on banks and other financial institutions, the Fund said that while it recognized the fact that the unprecedented policy response to the global economic crisis is gradually beginning to restore market confidence ; the challenges to restoring financial stability remain still significant.
“The global financial system remains under severe stress as the crisis broadens to include households, corporations, and the banking sectors in both advanced and emerging market countries”, the IMF said.
The Washington D.C.-based agency called for the redesign of the global financial system to provide a “more stable and resilient platform for sustained economic growth.”