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Updated: April 21, 2010 18:01 IST

IMF trims estimate of losses from financial crisis

AP
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US Treasury Secretary Mr. Timothy Geithner gestures during the daily briefing at the White House in Washington. File photo: AP.
US Treasury Secretary Mr. Timothy Geithner gestures during the daily briefing at the White House in Washington. File photo: AP.

The world’s banks could be spared billions in losses thanks to a global economy that is recovering from the financial meltdown more quickly than initially expected.

The International Monetary Fund is forecasting that global bank losses from the financial crisis will total $2.28 trillion, a drop of $533 billion from an estimate made last October.

The IMF said Tuesday that its forecast for losses just for U.S. banks had dropped to $885 billion, down from an estimate of $1.03 trillion made in October.

But the IMF cautioned that while risks to the global economy from financial sector instability had lessened from a year ago, the risks from government debt burdens such as the problems in Greece had increased.

A debt crisis in Greece is still roiling markets and raising concerns about debt burdens in other countries, including the United States, which has seen the federal deficit surge to a record of $1.4 trillion last year.

“While attention has been on Greece, fiscal concerns are not confined to one country,” Jose Vinals, director of the IMF’s monetary and capital markets department told reporters at a briefing. He said that debt levels in many countries were approaching highs not seen since the end of World War II.

Mr. Vinals said the IMF saw the rise in government debt burdens as a major challenge facing the global economy. He said it was critical for countries to develop credible plans to get control of them.

The IMF report attributed the lower estimated bank losses in part to a faster—than—expected rebound in the global economy. The report will serve as one of the discussion documents at the spring meetings of the IMF, World Bank and finance officials from the Group of 20 major industrial and developing nations.

The meetings, which will begin on Thursday, are taking place against a backdrop that has significantly improved from a year ago, when the world was still in the grips of the worst financial crisis since the 1930s.

U.S. Treasury officials who briefed reporters on Tuesday said Treasury Secretary Timothy Geithner would stress the need during the weekend discussions to continue government stimulus to ensure the global recovery is on a sustained basis with unemployment falling.

These officials said Mr. Geithner also planned to discuss the efforts being made in the United States to put in place financial reforms to prevent future financial crises and contributions the United States will make toward achieving the G—20 goal of eliminating global imbalances that contributed to the economic slump such as high trade and budget deficits in the United States.

The IMF’s latest “Global Financial Stability Report” stresses that a number of risks remained, ranging from sizable government debt burdens to continued threats facing the banking systems of many countries.

The IMF called the need for countries to get control of budget deficits the “most daunting challenge facing governments in the near term.”

The IMF has dispatched a team to Athens, Greece, for negotiations with that country’s government and officials from the European Union. The talks are focused on a possible financial rescue package to help Greece weather a debt crisis that has rattled investors around the world.

The decline in the IMF’s estimate for bank losses from the financial crisis reflects a drop of 13 percent in the IMF’s estimate of loan losses, which fell to $1.65 trillion, and a 31.3 percent decline in losses on bank securities, which fell to $629 billion.

For the United States estimates for losses on bad loans fell 10.1 percent to $588 billion and losses on securities investments fell 20.2 percent to $296 billion.

But the IMF report cautions that these improvements may not materialize.

“In the United States, real estate exposures still represent a significant downside risk,” the IMF said. “The regional banks with heavy exposure in real estate need to raise capital.”

The IMF said that concerns about real estate lending also represent a challenge for many countries in Europe, contending that the most vulnerable loans in Spain now are loans made to property developers.

The IMF said governments must “decisively move forward to complete the regulatory agenda” to ensure that the global economy will have a safer and more resilient banking system in place.

President Barack Obama’s effort to overhaul the U.S. financial system is heading for a showdown in the Senate with the administration hoping that a fraud lawsuit brought by the Securities and Exchange Commission against financial giant Goldman Sachs will help tip the odds in favour of a sweeping overhaul bill.

Coordinating regulatory reform efforts among major countries will be a key topic of conversation on Friday when Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke are hosts to their counterparts for a meeting of the G—20, composed of the world’s wealthiest countries and major developing economies including China, India, Brazil and Russia.

Those discussions will be a prelude to meetings on Saturday and Sunday of the policy—setting committees of the IMF and its sister lending organization, the World Bank.

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