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IMF trims loss estimate from financial crisis

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.
/ Source: The Associated Press

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.

The international lending agency attributes the improvements in part to a faster-than-expected rebound in the global economy. But the IMF warns that risks still remain, especially in the area of government debt. A debt crisis in Greece is still roiling markets and raising concerns about huge debt burdens in other countries including the United States.

"Risks to global financial stability have eased as the economic recovery has gained steam," the IMF said in a new report. The document is being issued in advance of the spring meetings of the IMF and World Bank and finance officials from the Group of 20 major industrial and developing nations.

The meetings, which will begin 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.

Risks remain
But 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.

Regulatory reform
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 favor 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 Saturday and Sunday of the policy-setting committees of the IMF and its sister lending organization, the World Bank.