Banks Facing $3.6 Trillion 'Wall Of Maturing Debt'
Banks facing $3.6 trillion 'wall of maturing debt',
IMF Global Financial Stability Report says
Debt-laden banks are the biggest threat to global financial stability and they
must refinance a $3.6 trillion "wall of maturing debt" which comes due in the
next two years, the International Monetary Fund said in its
Global Financial Stability Report.
Many European banks need bigger capital cushions to restore market confidence and help reduce the risk of another financial crisis, according to the IMF's report, published on Wednesday.
Banks around the world are facing a $3.6 trillion "wall of maturing debt" coming due in the next two years, and the rollover requirements are most acute for Irish and German banks, the report said.
"These bank funding needs coincide with higher sovereign refinancing requirements, heightening competition for scarce funding resources," the IMF said.
However the IMF said Spain's efforts to control its budget deficit have increased investor confidence and make it unlikely the country will follow Portugal in calling for a bail-out.
"The actions that have been taken in Spain recently have managed to decouple in the views of markets the fortunes of Spain relative to those of Portugal" and Ireland, said Jose Vinals, director of the IMF's monetary and capital markets department.
Government debt was generally high and on a worryingly upward path in many advanced economies, the IMF said. It repeated its warning that the United States and Japan faced particularly dangerous debt dynamics.
Advanced economies were "living dangerously" with high debt burdens, and faced the difficult task of trying to pare deficits without choking off the economic recovery.
However Dominique Strauss-Kahn, managing director of the IMF, warned countries against cuttting their budgets too far and creating long-term unemployment.
"Fiscal tightening can lower growth in the short term, and this can even increase long-term unemployment, turning a cyclical into a structural problem," Mr Strauss-Kahn said in a speech in Washington DC. "The bottom line is that fiscal adjustment must be done with an eye kept keenly on growth."
Overall, the IMF said global financial stability has improved over the past six months. The most pressing challenges in the coming months will be funding of banks and sovereigns, particularly in vulnerable euro area countries, it said.
US banks built up capital buffers in 2009, when regulators completed a set of stress tests that revealed some large holes. But European banks still need to raise a "significant amount of capital" to regain access to funding markets, the fund said.
The European Central Bank's upcoming stress tests provide a "golden opportunity" to improve bank balance sheet transparency and reduce market uncertainty about the quality of assets on banks' books, the IMF said.
European banks won't be able to obtain all the necessary capital from markets, and public money may have to fill some of the gaps, it added. Banks could also cut dividend payouts and retain a larger portion of earnings.
The IMF said banks' exposure to troubled sovereign debt is "uncertain," which adds to the funding strains.
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