European Banks Facing Big Sell-Off

IMF sees banks forced to sell up to $4.5 trln in assets if policymakers fail to stem fiscal crisis.

The International Monetary Fund said European banks may need to sell as much as $4.5 trillion in assets through 2013 if policy makers fall short of pledges to stem the fiscal crisis, up 18 percent from its April estimate.

Failure to implement fiscal tightening or set up a single supervisory system in the timing agreed could force 58 European Union banks from UniCredit SpA to Deutsche Bank AG to shrink assets, the IMF wrote in its Global Financial Stability Report released today. That would hurt credit and crimp growth by 4 percentage points next year in Greece, Cyprus, Ireland, Italy, Portugal and Spain, Europe’s periphery.

‘QE-Type’ Program

Jose Manuel Gonzalez-Paramo, a former ECB Executive Board member, said in an interview in Madrid that the central bank could offer more long-term loans such as the three-year operations it introduced last year or ease collateral rules to feed more liquidity into the European economy. There’s “nothing that prevents the ECB from executing some QE-type” program, he said, referring to quantitative easing.

Industrial Output

In France, industrial production unexpectedly increased in August, rising 1.5 percent from the previous month, when it advanced 0.6 percent, French statistics office Insee in Paris said today. Italian output also increased, rising 1.7 percent in August from July, a separate report showed.

$600 Billion

So far, the IMF estimates that deleveraging among sample banks has reached more than $600 billion in the year through June. Progress has been most pronounced among U.K. banks, which have cut non-core business, French banks, which have reduced U.S. dollar-denominated assets including structured products and Dutch banks, which have sold subsidiaries in the Americas, the IMF said. Efforts to raise capital cushions have helped strengthen balance sheets and prevent larger asset sales, it said.

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