IMF: European banks facing US$4.5-trillion sell-off

International Monetary Fund (Photo credit: JavierPsilocybin)

 Paris, Oct. 10, stock trade .-  The International Monetary Fund said European banks may need to sell as much as US$4.5 trillion in assets through 2013 if policy makers fall short of pledges to stem the fiscal crisis, up 18% from its April estimate.

Failure to implement fiscal tightening or set up a single supervisory system in the timing agreed could force 58 European Union banks from UniCredit SpA to Deutsche Bank AG to shrink assets, the IMF said. That would hurt credit and crimp growth by 4 percentage points next year in Greece, Cyprus, Ireland, Italy, Portugal and Spain, Europe’s periphery.

“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 wrote in its Global Financial Stability Report released this week. “Restoring confidence among private investors is paramount for the stabilization of the euro area.”

The Washington-based IMF cut its global growth forecasts Tuesday and warned of even slower expansion if European officials don’t address threats to their economies. While the European Central Bank’s plan to purchase bonds of debt-burdened countries bought governments time to act, divisions over a banking union and Spain’s reluctance to ask for a bailout threaten to boost borrowing costs.

The European rescue mechanism and the ECB bond program “must be regarded by markets as real, not ‘virtual’ and should be coupled with credible conditionality,” Jose Vinals, the director of the IMF’s monetary and capital markets department, said in prepared remarks for a press conference in Tokyo today. Asian stocks fell for a third day today on global growth concerns, with the MSCI Asia Pacific Index down 0.8% at 12:11 p.m. in Tokyo, led by Japanese shares.
In April, the IMF forecast asset sales of US$3.8 trillion in a “weak policies scenario.” Since then, policy makers’ delay in taking decisions to solve the crisis worsened funding pressures while the relief provided by the ECB’s program of unlimited three-year loans faded. ... Continue to read.

Related articles

• Eurozone crisis live: IMF demands more progress to avert disaster - The Guardian (guardian.co.uk)
• IMF Sees European Banks Facing $4.5 Trillion Sell-Off (bloomberg.com)
• European Banks Need To Sell Up $4.5 Trillion In Assets In Next 14 Months, IMF Warns (zerohedge.com)