IMF seal of approval for Government's bank plans
Published 06/10/2010 | 05:00
THE Government's plans for Anglo Irish Bank and the financial sector got the thumbs up from the International Monetary Fund (IMF) yesterday in a report on the global economy.
The plan to split Anglo Irish into two banks "coupled with other actions to stabilise the Irish banking system and the fiscal balance sheet are expected to limit the contingent liabilities faced by the Government", the IMF said in its twice-yearly report.
On the global economy, the IMF said problems with government debt in Europe and continued property woes in the United States had dealt a setback to global financial stability in the past six months. It said risks to the financial sector could be reduced if legacy problem assets were cleaned up, if governments improved their fiscal positions and if more clarity was provided on global financial regulation.
"The global financial system is still in a period of significant uncertainty and remains the Achilles' heel of the economic recovery," the IMF said.
The IMF trimmed its estimate of total global bank writedowns related to the financial crisis between 2007 and 2010 to $2.2trn (€1.59trn) from its April estimate of $2.3trn (€1.66trn), largely due to a drop in securities losses. Banks have recognised more than three-quarters of these writeoffs, leaving about $550bn (€397bn) to be taken.
The fund said banks everywhere had made less progress in dealing with near-term funding pressures and nearly $4trn of bank debt needed to be refinanced in the next 24 months.
"Overall, bank balance sheets need to be further bolstered to ensure financial stability against funding shocks and to prevent adverse feedback loops with the real economy," the report added.
The forceful policy response to the European debt crisis in April and May of this year, which saw member states agree a massive bailout fund for countries in trouble, helped to offset market and liquidity risks to banks.
But the sector's stability in the region remains vulnerable to potential market shocks, the IMF said.
In the United States, concerns about household balance sheets and real estate markets amid persistently high unemployment were clouding the outlook for loan quality and bank capital needs.
"Although manageable from a financial stability perspective, a double dip in real estate could have a long lasting impact on the economic recovery," the IMF said.
US banks have had to raise modest amounts of capital, but this largely reflected the shifting of much of the mortgage risks and losses on to the government-controlled Fannie Mae and Freddie Mac, the IMF said.