Saturday, August 2, 2008

IMF Global Financial Stability Report Update July 2008

Losses of the Financial system due to Subprime troube $1 trillion

In April, the IMF said that banks and other financial institutions could lose $1 trillion from the credit crisis as mortgage-backed assets lost most of their value - and it is still sticking to that estimate.

The current report says that that the banks have now acknowledged these risks and written off nearly $500bn worth of assets.

IMF Global Financial Stability Report Quarterly Update July 2008

At the moment however with delinquencies and foreclosures raising rapidly and house prices continuing to fall, a bottom for the housing market in the United States is not yet visible and the credit deterioration is spreading to even prime mortgage loans. Housing prices are also softening in a number of European economies, prompting concerns over future loan losses in the mortgage, construction, and commercial property sectors in those countries.

On the positive side, despite banks' write-downs now exceeding $400 billion in aggregate, banks have generally been successful in raising capital and balance sheets of the banks are adjusting. In fact, the equity raised covers upwards of three-fourths of the write-downs to date . Regarding the estimate of total mark-to-market losses that we published in our April GFSR, market prices of asset-backed securities and the ongoing delinquency experience give us little reason to change these estimates, so we have not revised the estimates on this occasion.

A question and clarification in the press conference by IMF July 2008

QUESTION: I just wanted one quick point of clarification. The loss that you were talking about that you haven't adjusted is the $1 trillion one.

MR. CARUANA: Yes, the figure that I was referring to in terms of losses was the calculation that we presented in our April GFSR of nearly $1 trillion in losses. We think that this figure is probably right and we have not changed it.

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