The IMF on Tuesday raised its estimate of losses from the global financial and economic crisis to more than US$4 trillion because of writedowns on soured credit.
The IMF said the total estimated cost of US$4.054 trillion includes US$2.712 trillion in losses in US-originated assets.
The losses for European-originated assets were estimated at US$1.193 trillion and those of Japanese-originated assets at US$149 billion.
The total cost represents what was needed and would be needed by financial institutions because of the deterioration in credit, in particular in the plunge in the value of equities backing credit, such as mortgage loans, as the global economy suffers the worst contraction in six decades.
The estimate, which covers the period from the beginning of the financial crisis in the middle of 2007 to next year, was published in the IMF’s latest semi-annual Global Financial Stability Report.
The IMF’s previous update in January of a projected loss of US$2.2 trillion was based exclusively on US-originated assets, as had been the October report estimate of US$1.4 trillion.
“The global financial system remains under severe stress as the crisis broadens to include households, corporations, and the banking sectors in both advanced and emerging market countries,” the IMF said.
The 185-nation institution projected that banks will bear US$2.470 trillion, or 61 percent, of the total losses and said that two-thirds of them have yet to be declared.
The IMF economists calculated that for banking systems to be recapitalized to pre-crisis levels, US$275 billion would be needed in the US and US$600 billion in Europe.
To return to mid-1990s levels, the amounts would rise to US$500 billion in the US and US$1.2 trillion in Europe.