European Banks May Face $4.5 Trillion Sell-Off Through 2013: IMF
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European banks may need to sell as much as $4.5 trillion in assets through 2013, if political leaders fail to quell the current fiscal crisis, said the International Monetary Fund in its latest Global Financial Stability Report on Wednesday.
European banks may need to sell as much as $4.5 trillion in assets through 2013, if political leaders fail to quell the current fiscal crisis, said the International Monetary Fund in its latest Global Financial Stability Report on Wednesday.
The bi-annual report, which assesses the key risks facing the global financial system at present, said that the risks to financial stability, within Europe in particular, had increased significantly since the April 2012 GFSR; and that “tail-risk perceptions surrounding currency redenomination have fuelled a retrenchment of private financial exposures to the euro area periphery.”
“Although significant new efforts by European policymakers have allayed investors’ biggest fears, the euro area crisis remains the principal source of concern,” wrote the IMF.
[quote]“Where the April 2012 GFSR found the need for euro area policymakers to build on improvements and avoid fresh setbacks, this GFSR finds that more speed is needed now,” it later wrote.[/quote]Related: Can Europe Learn From Their Own Past Crises?: Harold James
Related: Europe’s Flawed Economics – Why The Euro’s Survival Remains In Doubt: Joseph Stiglitz
On Wednesday, Bloomberg News also reported that the latest estimate by the IMF – on how much assets European banks have to sell – is 18 percent higher than what was anticipated in April. According to the IMF, If the 58 European Union (EU) banks are indeed forced to sell that much, credit flow would be significantly harmed and 2013 growth would fall by 4 percent in the peripheral countries of Cyprus, Greece, Ireland, Italy, Portugal and Spain.
The IMF are presently monitoring a 100 billion-euro bailout of Spanish banks; while co-financing several rescue packages for Portugal, Greece, and Ireland. Even in the baseline scenario, where governments are required to follow up on their commitments, the IMF says that there will be at least $2.8 trillion of reduction in bank assets.
“Intensification of the crisis has manifested itself in capital outflows from the periphery to the core at a pace typically associated with currency crises or sudden stops,” the IMF said. “Restoring confidence among private investors is paramount for the stabilization of the euro area.”
[quote]”Unless confidence in the euro area is restored, fragmentation forces are likely to intensify bank deleveraging, restrict lending, add to the economic woes of the periphery, and spill over to the core,” the IMF said in its report.[/quote]Related: Monetary Delusions – Why Added Liquidity Alone Will Not Revive The Economy: Joseph Stiglitz
Related: The Eurozone Exposed – How Europe Can Avoid A Prolonged Depression: Stefano Micossi
