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Credit crunch losses could near $1trn, IMF says

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Date: Tuesday 08 Apr 2008

LONDON (ShareCast) - Financial institutions’ losses due to the credit crunch could approach $1 trillion, the International Monetary Fund said today.

The tightening of credit markets that began with the collapse of US sub-prime mortgages, but spread to other lending markets and countries, has already resulted in €193bn in losses, the IMF said, adding that this figure could potentially reach $945bn.

The figure includes an estimated $565bn in losses derived from falling US house prices and rising delinquencies on mortgage payments, with other categories of loans in areas such as commercial real estate and consumer credit accounting for the rest.

The estimates were made in the IMF’s Global Financial Stability Report, which was released earlier today. It said central banks needed to do more to prevent such developments occurring again.

“Recent developments suggest that central banks need to reflect further on the role that monetary policy may have played in fostering a lack of credit discipline and to improve their instruments for relieving liquidity stress in today’s more global financial system,” the report said.