Washington - Banks and other lenders around the world must
face up to more than 4 trillion dollars in losses related to the
ongoing financial crisis, which has spread well beyond its origins in
the United States, the International Monetary Fund warned Tuesday.
Released as part of a semiannual financial forecast, the estimate
is nearly double what the IMF predicted in January and for the first
time includes financial firms' exposure to troubled assets that did
not originate in the United States.
Only about one third of the losses predicted by the IMF have been
reported by banks to date, and the global lender warned that many
governments may yet have to consider nationalizing more financial
institutions in order to keep the whole system from collapsing.
At the same time, the IMF warned against 'financial protectionism'
by governments - policies that encourage banks to pull out of foreign
investments in an effort to boost lending back home.
Investors and banks have been fleeing from emerging economies over
the last year as the financial crisis grew in wealthier nations. The
IMF said it expects developing countries to face a net outflow of
capital in 2009.
The US housing market remains at the epicentre of the financial
crisis. About 2.7 trillion dollars in writedowns will come from
mortgage-related assets in the United States, up from 2.2 trillion
dollars predicted in January.
But the IMF said assets in Europe and Japan were becoming a
growing part of the problem. Europe-originated loans and securities
will cause about 1.2 trillion dollars in writedowns and Japan will
add another 149 billion dollars to the financial turmoil's price tag.
While the US mortgage market was the first to begin folding in
mid-2006, housing bubbles have collapsed in several European
countries - a list topped by Britain, Ireland and Spain - as well as
parts of Japan over the last year.
In total, the IMF now expects about 4.1 trillion dollars in losses
globally before the crisis comes to an end. About two-thirds of the
writedowns will come from banks, but others exposed include pension
funds and insurance companies. The IMF said US pension funds alone
may face 200 billion dollars in losses.
While private lending had shown some signs of returning in recent
months, the IMF said 'bolder steps' like nationalization might be
needed if investors couldn't be encouraged to join government efforts
to prop up the financial industry.
Governments in the United States and Europe have already plugged
hundreds of billions of dollars into financial institutions, which
are going through their worst crisis since the Great Depression. But
most administrations have so far resisted taking commanding stakes in
banks.
'The current inability to attract private money suggests that the
crisis has deepened,' the report said, 'to the point where
governments need to take bolder steps and not shrink from capital
injections in the form of common shares, even if it means taking
majority or even complete control of institutions.'
USA
Your Talkback on this Story