Alan Beattie
Financial Times
April 21, 2010

A healthier world economy and better financial conditions have reduced banks’ need to write down assets but sovereign debt problems may be spreading, according to the International Monetary Fund.

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In its twice-yearly global financial stability report, the fund reduced its estimate of the writedowns required of banks around the world to $2,300bn from an earlier estimate of $2,800bn made six months ago. A recovery in the financial markets had increased the value of their assets and made it easier to raise capital, the fund said.

But the fund said that the credit recovery would be “slow, shallow and uneven”, and that sovereign debt problems in countries such as Greece had the potential to undermine the recovery.

“With markets less willing to support leverage – be it on bank or sovereign balance sheets – and with liquidity being withdrawn as part of policy exits, new financial stability risks have surfaced,” the report said. The rise in sovereign credit risk premiums in the early stage in the crisis had now been compounded by growing concern about the creditworthiness of countries with heavy government debt burdens.


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