IMF Says Banks Need At Least Another $875B In Equity
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The International Monetary Fund (IMF) said banks in the U.S. and Europe need capital injections of $875 billion to bring tangible common equity to tangible assets to 4 percent, the level prevailing before the crisis.
The IMF said this amount of capital would be necesary to restore banks' buffers to levels that the market believes would permit banks to operate in today's environment.
The IMF said under another scenario, a somewhat more demanding TCE/TA ratio of 6 percent would be needed. The IMF said some of this capital could come from the conversion of preferred shares to common equity or from the implicit guarantees of some governments to cover bank losses on some sets of assets. Yesterday, reports suggested the U.S. government was considering the approach to convert preferred shares to common equity.
The IMF estimates potential writedowns, including about $1 trillion already taken, could be nearly $4.1 trillion on some $58 trillion of assets originated in the United States, Europe, and Japan. The IMF said banks will likely bear about two-thirds of the $4.1 trillion in writedowns, which together with their exposure to emerging markets, is about $2.8 trillion in actual and potential writedowns. Writedowns will also be borne by other financial institutions, including pension funds and insurance companies.
For assets originated in the U.S., the IMF estimates that writedowns will total about $2.7 trillion, up from the roughly $2.2 trillion projected in an interim report in January. The $2.7 billion covers both losses already recognized and those yet to come this year and next.
Link to IMF Research
The IMF said this amount of capital would be necesary to restore banks' buffers to levels that the market believes would permit banks to operate in today's environment.
The IMF said under another scenario, a somewhat more demanding TCE/TA ratio of 6 percent would be needed. The IMF said some of this capital could come from the conversion of preferred shares to common equity or from the implicit guarantees of some governments to cover bank losses on some sets of assets. Yesterday, reports suggested the U.S. government was considering the approach to convert preferred shares to common equity.
The IMF estimates potential writedowns, including about $1 trillion already taken, could be nearly $4.1 trillion on some $58 trillion of assets originated in the United States, Europe, and Japan. The IMF said banks will likely bear about two-thirds of the $4.1 trillion in writedowns, which together with their exposure to emerging markets, is about $2.8 trillion in actual and potential writedowns. Writedowns will also be borne by other financial institutions, including pension funds and insurance companies.
For assets originated in the U.S., the IMF estimates that writedowns will total about $2.7 trillion, up from the roughly $2.2 trillion projected in an interim report in January. The $2.7 billion covers both losses already recognized and those yet to come this year and next.
Link to IMF Research
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