Toxic Asset Fallout May Hit $4.1 Trillion

The International Monetary Fund has raised its estimate of the amount of toxic assets that banks and financial institutions will have to dispose of or write down to $4.1 trillion. This estimate was in the IMF's Global Financial Stability Report issued Tuesday. The IMF says the estimates for global write-downs between 2007 and 2010 increased from $2.7 trillion in January, in part, because it includes more types of assets that have been depreciating.

Earlier estimates only included U.S.-originated assets. Also contributing to the new estimates is what the IMF calls "the worsening base-case scenario for economic growth," projecting the recovery will be painful and slow.

More than 70 percent of the $4 trillion in losses will likely fall on banks, although the IMF says that non-bank financial institutions like insurance companies and pension funds also have been hit hard by declines in asset prices on both equities and bonds.

Shrinking economic activity has put further pressure on banks' balance sheets as asset values continue to degrade, threatening their capital adequacy and further discouraging fresh lending, the report says.

Cross-border international lending has intensified the crisis in some emerging market countries, according to the IMF. The IMF sees net private capital flows to emerging market countries becoming negative in 2009, and at the same time refinancing needs for the emerging markets should be about $1.2 trillion this year.

The global financial system still remains under severe stress as the crisis broadens to include households, corporations and banks in advanced and emerging market countries, the IMF says.

The IMF says it also worries that political support for additional aid to the financial system is waning as the public is becoming disillusioned by what it perceives as abuses of taxpayer funds.

About the Author

Linda McGlasson

Linda McGlasson

Managing Editor

Linda McGlasson is a seasoned writer and editor with 20 years of experience in writing for corporations, business publications and newspapers. She has worked in the Financial Services industry for more than 12 years. Most recently Linda headed information security awareness and training and the Computer Incident Response Team for Securities Industry Automation Corporation (SIAC), a subsidiary of the NYSE Group (NYX). As part of her role she developed infosec policy, developed new awareness testing and led the company's incident response team. In the last two years she's been involved with the Financial Services Information Sharing Analysis Center (FS-ISAC), editing its quarterly member newsletter and identifying speakers for member meetings.

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