Immediate action needed to counter credit crisis: IMF

April 9th, 2008 - 12:09 am ICT by admin  

Washington, April 8 (DPA) Banks should disclose all looming writedowns and new risk management strategies as soon as possible to quell market fears amid an ongoing crisis in the global financial sector, the International Monetary Fund said Tuesday. The IMF said the credit crisis - sparked by a record number of defaults by subprime mortgage holders in the US - was the result of an antiquated system of financial regulation and a “collective failure to appreciate the extent of leverage taken on by a wide range of institutions”.

Banks have already been forced to write off more than $200 billion as the value of mortgage-backed securities has dropped dramatically since the summer of 2007. The availability of credit to ordinary consumers has tightened as a result.

The Washington-based IMF warned the crisis could lead to an even greater “wrenching adjustment” of credit markets if action is not taken immediately in the private sector to bolster confidence in financial markets.

Much of that action should revolve around new disclosure, transparency and regulatory practices by investment banks and other institutions, which until now had taken on excessive risks and left themselves open to the kind of “unwinding” now being experienced.

Banks should quickly disclose new strategies aimed at correcting the past failures in risk management, the IMF said in its Global Financial Stability Report, released in the run-up to a series of annual spring time meetings this weekend between members of the IMF and its lending partner the World Bank.

The IMF said the financial crisis was also being compounded by a wider economic slowdown. The lender last week dropped its global growth forecast for 2008 to 3.7 percent, down from 4.1 percent in January and 4.8 percent in October.

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