From Volume 38, Issue 17 of EIR Online, Published Apr. 29, 2011

Global Economic News

IMF Says Banks Threatened by $3.6 Trillion 'Debt Wall'

April 18 (EIRNS)—In its just-released "2011 Global Financial Stability Report," the IMF says banks are entering a wild competition with bankrupt states to obtain capital themselves, with an immediate "peak" in 2012-13: "Global banks face a wall of maturing debt, with $3.6 trillion due to mature over the next two years. Bank debt rollover requirements are most acute for Irish and German banks, from 40% to one-half of all debt outstanding is due over the next two years.... A number of banks in Europe—including nearly all banks in Greece, Ireland, Portugal, many of the small and mid-size Spanish cajas [savings banks], and some German Landesbanken [banks owned by German states]—have lost cost-effective access to term funding markets. As a result they have turned in varying degrees to repo markets and the ECB for refinancing. But there is still a risk that, in the event of further negative news, a greater number of institutions could face difficulties in rolling over their wholesale funding."

Commenting on the report, the Catholic daily La Croix says the real cause of the mess is the fact that the "toxic assets" problem was never solved. Gaéal Giraud, a professor at the Paris School of Economics, said that, "In September 2008, the banks in Europe and the United States obtained from the international accounting regulator [IMF], agreement that they would no longer have to book these assets at market price, whose value is zero," which, La Croix continues, allowed them avoid having to report colossal losses.

It also explains their astonishingly rapid return to profits. "This exceptional regime of being exempted from normal bookkeeping rules, which was initially temporary, remains in force today, since in September 2009 the U.S. and European authorities realized the seriousness of the situation and the difficulty of getting out of it. The problem is therefore simply frozen, not dealt with."

The IMF itself admitted precisely this, that the big banks are as stuffed with toxic assets now as they were in early 2009, in a staff report publicly circulated on March 2. For a reminder, according to the IMF's own estimates in April 2009, toxic assets represented $4 trillion. In August 2009, Bloomberg estimated the total bailout money from U.S. government agencies alone reached $12.8 trillion, equal to U.S. GDP, or $42,000 per American.

South Korea Begins Investigation of Derivatives Traders

April 21 (EIRNS)—South Korea's financial regulator and central bank announced a second probe into the trading of foreign-exchange derivatives, as a response to the escalating rise in the South Korean currency, the won, which directly threatens the country's exports.

The audit, similar to one performed last year with some success in reducing speculation, will be carried out by the finance ministry and the Bank of Korea, and will focus on whom banks are trading with and their purpose for buying or selling non-deliverable forwards, an especially dangerous, foreign-exchange speculative derivatives.

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