IMF Pours Cold Water For Second Day In A Row, Sees €300 Billion In Euro Bank Risk Exposure

Tyler Durden's picture

A day after the IMF warned that the world is facing a dramatic economic slowdown cliff, it follows up by pulling off the scab on a festering European wound, with Reuters reporting that according to the IMF, "Europe's debt crisis has increased the risk exposure of banks in the region by 300 billion euros and they need to recapitalize to ensure they can weather potential losses. In its Global Financial Stability Report, the IMF said it sought to "approximate the increase in sovereign credit risk experienced by banks over the past two years." Earlier this month, IMF Managing Director Christine Lagarde drew fire from European officials when she called for a mandatory recapitalization of Europe's banks. News reports last month said the IMF had identified a 200 billion euro shortfall in European bank capital, but officials in Europe insisted the figure was off the mark and the capital position of most banks in the region was solid." So what does the IMF do to address protests by the IMF that it was overestimating undercapitalization? It hikes them by 50%! Yet even so it is still €700 billion short of Goldman's estimate for a €1 trillion hole in Europe. Also, assuming European banks had three peaceful years in which to recapitalize at much higher valuations, it is safe to say they will absolutely not do it now, when the market has basically locked them out. And needless to say, when Greece defaults all these shortfall numbers will have to be revised.... by a factor of 10x... higher.

From Reuters:

European officials stood by bank stress tests they conducted in July that found only eight banks deficient in capital with a combined shortfall of only 2.5 billion euros, a figure widely criticized as too low and politically skewed.


The IMF's report on Wednesday made clear the 200 billion figure was not a hard measure of a capital shortfall.


Instead, it measured how risk exposure had increased as sovereign debt prices had fallen. It said a further 100 billion euro increase in exposure was related to a recent decline in bank asset prices and rise in bank funding costs.


The report said banks should raise capital privately although public funds may be necessary for viable banks. Lagarde had said Europe might need to consider tapping its sovereign debt bailout fund to bolster banks.


The IMF said the damage could spread from Europe to banks in emerging market economies.


For the first time, it estimated emerging market bank balance sheets could be reduced by up to 6 percentage points if the pace of global growth fell sharply on the back of Europe's troubles and forced a sudden reversal in capital flows.


The IMF said banks in Latin America were most vulnerable, while banks in Asia and eastern Europe were more sensitive to increases in funding costs.


"Risks are elevated and time is running out to tackle vulnerabilities that threaten the global financial system and the ongoing economic recovery," the report said.


The IMF called for a "coherent" strategy to address the risk of financial and economic spillovers from the European debt crisis, which has forced Greece, Portugal and Ireland to turn to the European Union and IMF for rescue loans.

We will bring you the full paperweight report once released. We are confident it will have many pretty charts in it.

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oobrien's picture

I'm fucking tired.

It's 10:30 p.m., and I'm skunked on Jinro Soju.

Goodnight, ladies.

And Gold bless you and yours.

Irish66's picture

added Latin America

TruthInSunshine's picture




If there's a credit crunch
in your neighborhood
Who ya gonna call?
The Bernank!

If liquidity's strained
and CDS don't look good
Who ya gonna call?
The Bernank!

<chorus sung by The Bernank>

I ain't afraid to print
I ain't afraid to print

Bindar Dundat's picture

When you up to your neck in shit -- don't open your mouth.

Quintus's picture

Surely the geniuses who designed the Euro Banks' recent Stress Tests would have included a little sovereign default in the mix to ensure banks were capitalized sufficiently to handle Greece going under?

What?  They didn't?  Because a Eurozone member defaulting is 'Impossible' due to the strength of political will to prevent such a thing?

Oh dear.  Such hubris.

I wonder where else 'Political Will' will be found wanting.

rambler6421's picture

Bank Run Bitchez!

Dick Darlington's picture

Lol, this european farce is increasing my diaper consumption by day.

Greenhead's picture

Nationalize the banks, anyone who wants credit should be able to get credit.  Call it the Solyndra Act!

Racer's picture

Ah that great bad news should be good for 300+ on the Dow

junkyardjack's picture

Its like they alley-oop, bounced the basketball off the backboard for Bernake to come in and do a 360 dunk this afternoon.  Bullish, I can't feel my face

lano1106's picture

that sounds like it is the case. Same kind of move where BOE announce more QE on their side.


lolmao500's picture

300 billion! Hahahahaha! That's way more than that. More like a few TRILLIONS.

falak pema's picture

you confuse BAD debt with total debt. Total PIGS debt is 2.5 trillion. So maybe 300 billion is optimisitc.

falak pema's picture

what is 300 billion in the world of trillions! expressed in fiat money, not in hi-rising gold!

When gold is at 50000 USD/oz, the hundred tons of Greece will be worth : 100 x 32k x 50k = 160 billion USD.

Debt over. Wait for the fiat to collapse and you go from sub prime debtor to prime debtor. The banks will be queing up to lend you fiat!

Curtis LeMay's picture

Congrats to ZH yet again....

Becky Meehan of CNBC Europe cited ZH this AM, AND she showed the homepage of ZH on the TV as well.

Again, well done, ZH., and well done to all of us who help make the site what it is today.


Caviar Emptor's picture

Well it turns out that there is really only one bank in the whole world: Ben's Banky. Without it everyone else would be so massively insolvent that they'd have to close and new people would start over again. Hey, did I say start over again? 

PaperBear's picture

A slow motion train wreck and the silver vigilantes have a front row seat.

fdisk's picture

"Sees €300 Billion In Euro Bank Risk Exposure"

Bullish for European Banks, cause they are up and running :)))

And Bearish for GOLD..

Quintus's picture

It's the day before Comex Options Expiry.  Everything is bearish for gold today.  It's traditional.

More QE?  Bearish.

No more QE?  Bearish.

Bank Run?  Bearish.

Sovereign Default?  Bearish.

Massive physical demand?  Bearish.

Just Bearish.

Coldfire's picture

It's almost as if that Lagarde dude wants the European banks to fail.

jdelano's picture

Hey--no bagging on Lagarde.  She's kinda sexy in that Judy Dench, butch dom kinda way.  Green if you'd go there.    

monopoly's picture

There politicians are as bad as ours. 300 Billion just a down payment.

And the list moves on. First, NFLX, Then RIMM and now coal stocks. WLT. Tick tock, tick tock.

lano1106's picture

What is the purpose of this communication? If it is suppose to scare people, I'm not sure it works. We are all like a bunch of Wookies waiting for the Death star to explode to celebrate all night long!


Portugal's picture

" Yet even so it is still €700 billion short of Goldman's estimate for a €1 trillion hole in Europe"

Let us all not forget that it was this same Goldman that got 56 waivers on its Financial Statements only in 2008 to be able to continue operating....

EasterBunny's picture

The agenda of the IMF seems clear; taxpayer funds to the banks , as a solution to the sovereign debt issues. Can anyone recommend a book that includes the history and shareholder of the IMF please. I want to understand better who this organisation really represents.

RockyRacoon's picture

300 Billion....  700 Billion....  a Trillion?   They are just arguing over how long the sword is that is going to slice off their heads.

Georgesblog's picture

My low opinion of the IMF comes from John Perkins ( Confessions Of An Economic Hit Man ). Knowing John as I do, from being a Board Op in talk radio, my appraisal of the IMF statement can be much more colorful. The IMF is just emptying the trash cans in the whorehouse, with their statement.  They must wear latex gloves when they count currency.

Miles Kendig's picture

The report said banks should raise capital privately although public funds may be necessary for viable banks - IMF [bolding mine]

Ahhhh, so the IMF now concedes the lack of viability within unspecified portions the banking sector.  The Eurocrats will be thrilled, chiefly among them the parser in chief, JCJ

Thanks Chrissy!  A bottle of red table wine on account for you.