FORECLOSURES IMF Global Report: Subprime Shocks the Globe
Sunday, April 20, 2008
Banking is no longer a local business, but an international one that is feeling the weight of the U.S. subprime credit crisis, the International Monetary Fund concluded in its latest Global Financial Stability Report (GFSR).
IMF says a convergence of factors—namely a failure to recognize the risks taken on by financial institutions, a lack of oversight among private managers and the weight banks are now feeling from write-downs on balance sheets—have raised concerns about the overall international economy.
“In sum, the global financial system has undoubtedly come under increasing strains since the October 2007 GFSR, and risks to financial stability remain elevated,” the GFSR said.
The report added that the private sector should respond by increasing transparency in lending, standardizing structured finance products, revamping rating systems, tightening oversight of originators, adding incentives for risk detection and financial instability prevention, encourage fair accounting, and strengthen international liquidity by analyzing the current use of multiple currencies and searching for a more unified form of currency.
IMF added in its GFSR that losses related to the U.S. subprime mortgage market and related securities could hit $565 billion, while other loan categories and originations could experience losses reaching as high as $945 billion.
While the markets begin the long work-out process, IMF warns policy makers about a “rush to regulate,” but definitely sees a larger role for itself when it comes to overseeing the international banking system.
“For its part, there is room for the International Monetary Fund to more actively promote best practices for financial crisis and central bank liquidity management,” the IMF asserted in the report. “These issues are covered in IMF Financial Sector Assessment Programs, and even greater efforts will be made to apply them in the IMF's bilateral and multilateral policy advice.”
IMF says a convergence of factors—namely a failure to recognize the risks taken on by financial institutions, a lack of oversight among private managers and the weight banks are now feeling from write-downs on balance sheets—have raised concerns about the overall international economy.
“In sum, the global financial system has undoubtedly come under increasing strains since the October 2007 GFSR, and risks to financial stability remain elevated,” the GFSR said.
The report added that the private sector should respond by increasing transparency in lending, standardizing structured finance products, revamping rating systems, tightening oversight of originators, adding incentives for risk detection and financial instability prevention, encourage fair accounting, and strengthen international liquidity by analyzing the current use of multiple currencies and searching for a more unified form of currency.
IMF added in its GFSR that losses related to the U.S. subprime mortgage market and related securities could hit $565 billion, while other loan categories and originations could experience losses reaching as high as $945 billion.
While the markets begin the long work-out process, IMF warns policy makers about a “rush to regulate,” but definitely sees a larger role for itself when it comes to overseeing the international banking system.
“For its part, there is room for the International Monetary Fund to more actively promote best practices for financial crisis and central bank liquidity management,” the IMF asserted in the report. “These issues are covered in IMF Financial Sector Assessment Programs, and even greater efforts will be made to apply them in the IMF's bilateral and multilateral policy advice.”
