Sept. 21 (Bloomberg) -- The European debt crisis has
generated as much as 300 billion euros ($410 billion) in credit
risk for European banks, the International Monetary Fund said,
calling for capital injections to reassure investors and support
lending.
Political squabbling in Europe over ways to fight contagion
and delays in implementing agreed measures are raising concerns
about the risk of defaults by governments, the IMF said. Banks
in turn face “funding challenges” because of investor concern
about their potential losses from government bonds they hold,
with some relying heavily on the European Central Bank for
liquidity, it said.
“A number of banks must raise capital to help ensure the
confidence of their creditors and depositors,” the IMF wrote in
its Global Financial Stability Report released today. “Without
additional capital buffers, problems in accessing funding are
likely to create deleveraging pressures at banks, which will
force them to cut credit to the real economy.”
The Washington-based IMF yesterday cut its global growth
forecast and predicted “severe’ repercussions if policy makers
fail to stem the debt turmoil that’s threatening to engulf Italy
and Spain. Bank recapitalization, through public injections if
necessary, should come in addition to “credible” strategies by
governments to reduce their public debt, the IMF said today.
Japan, U.K.
The ECB and peers in the U.K., Switzerland, Japan and the
U.S. last week said they’ll provide unlimited three-month money
to lenders in three tenders starting October. That was after
funding dried up for European banks in general, and French
lenders in particular, amid concern Greece is headed for a
default.
Credit Agricole SA and Societe Generale SA had their long-
term credit ratings cut one level this week by Moody’s Investors
Service, which cited their reliance on short-term funding and
Greek exposure.
The fund said its assessment of the potential credit risks
of European banks isn’t a calculation of their capital needs,
which would require a “fully fledged stress test.” It said its
analysis was based on published data from the European Banking
Authority’s stress test and Bank for International Settlements
figures.
The IMF also called on the U.S. and Japan to craft fiscal
plans for the medium term, “particularly given the many adverse
global economic and financial repercussions that would follow
from failure to adequately deal with U.S. fiscal problems.”
Emerging Markets
Emerging-market banks are not sheltered from the
consequences of weaker global growth, the IMF said. It estimated
that their capital adequacy could be dented by 6 percentage
points under a scenario that combines several shocks.
Calls by IMF Managing Director Christine Lagarde to
recapitalize European banks where shunned by officials from
Germany to Spain, with ECB President Jean-Claude Trichet
describing the fund’s methodology on capital as different from
his own institution’s.
Analysts at Credit Suisse Group AG in a Sept. 15 research
note estimated that European banks may have a capital deficit of
165 billion euros at the end of 2012 “given higher regulatory
capital demands and funding markets requiring larger capital
cushions.”
The IMF analysis measured the size of spillover on banks
from credit-related strains in the bond markets of Greece,
Ireland, Portugal, Belgium, Italy and Spain and used spreads on
credit default swaps.
The IMF said banks’ “spillover” from sovereign debt alone
amounts to about 200 billion euros. Adding banks’ holdings of
bank assets whose value has also fallen in the crisis countries
brings the total as high as 300 billion euros.
generated as much as 300 billion euros ($410 billion) in credit
risk for European banks, the International Monetary Fund said,
calling for capital injections to reassure investors and support
lending.
Political squabbling in Europe over ways to fight contagion
and delays in implementing agreed measures are raising concerns
about the risk of defaults by governments, the IMF said. Banks
in turn face “funding challenges” because of investor concern
about their potential losses from government bonds they hold,
with some relying heavily on the European Central Bank for
liquidity, it said.
“A number of banks must raise capital to help ensure the
confidence of their creditors and depositors,” the IMF wrote in
its Global Financial Stability Report released today. “Without
additional capital buffers, problems in accessing funding are
likely to create deleveraging pressures at banks, which will
force them to cut credit to the real economy.”
The Washington-based IMF yesterday cut its global growth
forecast and predicted “severe’ repercussions if policy makers
fail to stem the debt turmoil that’s threatening to engulf Italy
and Spain. Bank recapitalization, through public injections if
necessary, should come in addition to “credible” strategies by
governments to reduce their public debt, the IMF said today.
Japan, U.K.
The ECB and peers in the U.K., Switzerland, Japan and the
U.S. last week said they’ll provide unlimited three-month money
to lenders in three tenders starting October. That was after
funding dried up for European banks in general, and French
lenders in particular, amid concern Greece is headed for a
default.
Credit Agricole SA and Societe Generale SA had their long-
term credit ratings cut one level this week by Moody’s Investors
Service, which cited their reliance on short-term funding and
Greek exposure.
The fund said its assessment of the potential credit risks
of European banks isn’t a calculation of their capital needs,
which would require a “fully fledged stress test.” It said its
analysis was based on published data from the European Banking
Authority’s stress test and Bank for International Settlements
figures.
The IMF also called on the U.S. and Japan to craft fiscal
plans for the medium term, “particularly given the many adverse
global economic and financial repercussions that would follow
from failure to adequately deal with U.S. fiscal problems.”
Emerging Markets
Emerging-market banks are not sheltered from the
consequences of weaker global growth, the IMF said. It estimated
that their capital adequacy could be dented by 6 percentage
points under a scenario that combines several shocks.
Calls by IMF Managing Director Christine Lagarde to
recapitalize European banks where shunned by officials from
Germany to Spain, with ECB President Jean-Claude Trichet
describing the fund’s methodology on capital as different from
his own institution’s.
Analysts at Credit Suisse Group AG in a Sept. 15 research
note estimated that European banks may have a capital deficit of
165 billion euros at the end of 2012 “given higher regulatory
capital demands and funding markets requiring larger capital
cushions.”
The IMF analysis measured the size of spillover on banks
from credit-related strains in the bond markets of Greece,
Ireland, Portugal, Belgium, Italy and Spain and used spreads on
credit default swaps.
The IMF said banks’ “spillover” from sovereign debt alone
amounts to about 200 billion euros. Adding banks’ holdings of
bank assets whose value has also fallen in the crisis countries
brings the total as high as 300 billion euros.
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