IMF Reccomends Stronger Measures to Fight the Global Financial Crisis (2)

We come back to the IMF handbook published on April 2009, called “Global Financial Stability Report”. This time, we make refference to its reccomendations.

But before this, a new estimation of the IMF on the global write downs of assets. In January 2009 IMF estiamted the bad assets writing off to around $2.7 billion in the US only. In this latest report, the estimations included also other mature market-originated assets, which could increase the total write offs to around $4 billion. In other words, $4 billion of the US economy has been wiped off by the financial crisis (or will be, total until the end of 2010). Scary, isn’t it?

Reccomendations from the IMF include some common sense ones. For example, there is nothing new in the International Monetary Fund demand that the answers to the financial crisis are coordinated among governments and multinational institutions. The priorities of the G20 should be:
– ensuring that the banking system has enough fuel to run (access to liquidity);
– identify and deal with impaired assets of all kind and
– clear out of the markets the non-viable banks and support those who suffer from the financial crisis, despite the fact that they are a going concern.

The amount to be injected by the governments into the banks is impressive and therefore it needs a very careful monitoring:
“The first calculation assumes that leverage, measured as tangible common equity (TCE) over tangible assets (TA), returns to levels prevailing before the crisis (4 percent TCE/TA). Even to reach these levels, capital injections would need to be some $275 billion for U.S. banks, about $375 billion for euro area banks, about $125 billion for U.K. banks, and about $100 billion for banks in the rest of mature Europe. The second illustrative calculation assumes a return of leverage to levels of the mid-1990s (6 percent TCE/TA). This more demanding level raises the amount of capital to be injected to around $500 billion for U.S. banks, $725 billion for euro area banks, $250 billion for U.K. banks, and $225 billion for banks in the rest of mature Europe.”

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