IMF trims estimated cost of financial crisis to $2.3 trillion

The International Monetary Fund (IMF) has cut its estimate of the total cost of the global financial crisis by 18 per cent to $2.3 trillion from its October 2009 calculation of $2.8 trillion.

In its Global Financial Stability Report (GFSR) released yesterday, the Fund said the global banking system is coping with legacy problems and further challenges from the deleveraging process.

'' Improving economic and financial market conditions have reduced banks' expected writedowns - from $2.8 trillion to $2.3 trillion - and bank capital positions have improved substantially. But some segments  of banking systems in some countries remain capital deficient, mainly as a result of losses related to commercial real estate,'' it added.

Even though capital needs have fallen, banks still face considerable challenges: a large amount of short-term funding will need to be refinanced this year and next; more and higher-quality capital will likely be needed to satisfy investors in anticipation of upcoming more stringent regulation.

''Slow progress in addressing weak banks could complicate policy exits from extraordinary support measures. Banks must reassess business models, raise further capital, de-risk balance sheets and stabilise funding,'' the Fund cautioned.

In the face of downward pressure on profitability, the recovery of private sector credit is likely to be subdued as credit demand is weak and supply is constrained, the report noted.
The Fund warned that  acountry sovereign risks could undermine stability gains and take the credit crisis into a new phase.