The Philippine Star

IMF: Non-US banks have $1.4 T at risk in the event of shock

- Business · Finance · Banking · Financial Crisis · World Finances · International Monetary Fund · United States of America · Washington

WASH­ING­TON (AFP) — Should a new cri­sis erupt on world mar­kets, nonUS banks will strug­gle to cover their debts, which have in­creased since the global fi­nan­cial cri­sis, the In­ter­na­tional Mone­tary Fund (IMF) warned Fri­day.

And de­spite ef­forts to shore up the US bank­ing sys­tem – in some cases be­cause of those re­forms – the surge in li­a­bil­i­ties de­nom­i­nated in US dol­lars could make the banks’ home economies more vul­ner­a­ble, the IMF said in a new re­port.

The find­ings in a sec­tion of the Global Fi­nan­cial Sta­bil­ity Re­port show that the “fund­ing gap” of non-US banks – the dif­fer­ence be­tween as­sets and debt held in US dol­lars – has surged to $1.4 tril­lion, 13 per­cent of as­sets.

This could cause mar­kets to seize up if there a re­peat of the sit­u­a­tion at the start of the global fi­nan­cial cri­sis, when in­sti­tu­tions hoarded dol­lars and were re­luc­tant to lend which meant the cost of any the scarce funds avail­able soared, the IMF warned.

“This so-called cross-cur­rency fund­ing gap re­flects the amount of fi­nanc­ing that must be filled by us­ing in­stru­ments like for­eign cur­rency swaps, mak­ing banks more vul­ner­a­ble,” the au­thors said.

And greater re­liance on “volatile short-term sources of fund­ing” in­creases “the odds of bank de­faults in the home economies of non-US banks that rely on dol­lar fund­ing,” the IMF said.

The re­port called on gov­ern­ments to in­stall buf­fers to pro­tect against this sit­u­a­tion, which could am­plify shocks and spread to their economies.

Such buf­fers in­clude larger re­serve hold­ings by cen­tral banks “to fill the gap if dol­lar liq­uid­ity dries up,” as well as “cen­tral bank swap ar­range­ments that pro­vide ac­cess to US dol­lars dur­ing pe­ri­ods of stress,” the IMF said.

The re­port notes that US dol­lar-de­nom­i­nated as­sets of non-US banks amount to more than $12 tril­lion, com­pared with $10 tril­lion just be­fore the on­set of the cri­sis, mak­ing them more sen­si­tive to in­creases in US in­ter­est rates.

 ?? AFP ?? Signs for the up­com­ing IMF / World Bank An­nual Meet­ings hang out­side In­ter­na­tional Mone­tary Fund Head­quar­ters in Wash­ing­ton, DC.
AFP Signs for the up­com­ing IMF / World Bank An­nual Meet­ings hang out­side In­ter­na­tional Mone­tary Fund Head­quar­ters in Wash­ing­ton, DC.

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