Writing Off A Problem

The IMF is reporting that international bank losses still have a very long way to go.

The International Monetary Fund on Wednesday lowered its estimate for global writedowns for banks and other financial institutions to $3.4 trillion but warned that loan losses were set to rise as unemployment grew.

In April the IMF estimated in its Global Financial Stability Report that global bank losses could reach $4 trillion but said it cut the figure by $600 billion to reflect rising securities values and new methodology for calculating writedowns.

"Global financial stability has improved, but risks remain elevated and the risk of reversal remains significant," the IMF said. It added that the economic downturn was troughing but the recovery in advanced economies would be extremely slow.

The report said that while banks have enough capital to survive, their earnings are not expected to fully offset writedowns expected over the next 18 months.

It said stronger action was needed to bolster bank capital and earnings capacity to ensure banks could support a recovery.

The Fund said while private-sector credit growth has contracted in big economies, overall borrowing needs have not slowed as quickly because of burgeoning government deficits.

"The likely result is constrained credit availability," it said, adding that continued support by central banks may be required to alleviate this.

More bailouts and dirt-cheap loans will be needed, and in turn these banks will be sitting on the loans making money rather than risking lending that out to the cash-strapped American consumer or the businesses that employ them (for now).

The problem is that the banks will still need yet more money to stay up. We're maybe halfway through this mess at best. 2010 will not be pretty.