- The Washington Times - Tuesday, April 21, 2009

The International Monetary Fund said Tuesday that government efforts to end the global recession are restoring market confidence, but U.S. financial institutions still will have roughly $2.8 trillion in losses through next year.

The group’s semiannual Global Financial Stability Report also stated worldwide losses for banks could reach $4 trillion. Banks are expected to bear about two-thirds of the write-downs, with pension funds and insurance companies assuming much of the remaining losses, the report stated.

The report stated banks should “cleanse” themselves of bad debts to restore profitability and that “in some cases partial or even total government ownership will be required to assure [banks have] adequate capitalization and an effective restructuring plan.”

World leaders who met earlier this month in London for the G-20 summit agreed to invest more than $2 trillion in the global economy and make such policy changes as reforming financial markets, including the largely unregulated hedge funds.

The Obama administration has already put $787 billion into U.S. financial institutions through the Troubled Asset Relief Program.

The $2.8 trillion in losses is more than the roughly $2.2 trillion the IMF projected in its interim report in January. The amount was based on roughly $27 trillion in U.S.-originated assets.

“Write-downs continue to mount as the collapse of economic activity leaves companies and individuals increasingly unable to repay borrowings,” the report stated. “Banks will have to rebuild capital as a result of credit losses.”

The private, Washington, D.C.-based group monitors economic and financial developments, offers policy advice and provides temporary, short-term loans to countries.

The IMF also said more efforts must be made to lift economies out of the recession, which started in the United States in February 2007.

The report stated as much as $875 billion more might be needed by December 2010 to shore up U.S. and Europe banks — $275 billion for the U.S. banks, $125 billion of United Kingdom banks and $475 billion for other European banks.

“Continued decisive and effective action is needed to preserve and strengthen these first signs of improvement, and to help provide a more stable and resilient platform for sustained global growth,” said Jose Vinals, director of the IMF’s Monetary and Capital Markets Department.

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