Banks need $4 trillion over 2 years

Banks need $4 trillion over 2 years

A report by the IMF has revealed the startling prospect that US and European banks need to refinance around $4 trillion (about £2.75 trillion) in debt over 2011 and 2012.

The IMF also reiterated its claim that European banks were still hiding losses off their balncing sheets, having written down only around a quarter of expected losses.

The need to refinance comes at a time when bond markets have already been in turmoil due to fears that European countries could default on their debt.

Earlier in the year markets worried about the ability of some countries - notably Portugal, Ireland, Greece, and Spain.

While Greece remained much of the market focus, this has repeatedly shifted among the other countries, with Ireland currently in the spotlight again.

The IMF similar highlights problems with European banks in general, with the report stating, “Planned exit strategies from unconventional monetary and financial support may need to be delayed until the situation is more robust, especially in Europe.”

The turbulent bond markets have resulted in technical indicators pointing to equities being undersold, which may be leading some institutional investors into boosting their stock market exposure due to these irregular bond signals.

Meanwhile, the banking system across Europe, Japan, and the US remains on life support with the aid of near-zero interest rates and continued infusion of extra money through quantitative easing.

With new Basel III rules demanding banks look to capitalise around 7% minimum, this means the coming prospect of banks having to raise extra cash on top of the $4 trillion the IMF has already identified.

And with markets already unsettled, this could place an additional strain on the world’s banking system that some will not be capable of sustaining, according to the IMF, “Without further bolstering of balance sheets, banking systems remain susceptible to funding shocks that could intensify deleveraging pressures and place a further drag on public finances and the recovery.”

The UK is especially a concern, with the country’s banks required to refinance to the tune of £800 billion over the next two years, nearly a third of the refinancing the IMF has identified.

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