The IMF thinks global banks are getting healthier, but big ifs remain

Peter Cohan

The International Monetary Fund (IMF) thinks the global banking system is getting better. How so? Its latest report cuts the amount of toxic waste it thinks global banks will need to write off by $600 billion -- 15 percent less than its previous estimate of $4 trillion. Nevertheless, the IMF still believes that banks need to raise hundreds of billions in additional capital. And given all the looming risks, it may be overly optimistic.

Before getting into the details of the IMF's latest report, let's take a look at what the IMF is and why anyone should care what it says. The IMF was created at a UN conference held in Bretton Woods, N.H., in July 1944 to stabilize world currencies, promote global growth and provide capital in a financial crisis -- it committed $165 billion to help resolve the current one.

The IMF's latest Global Financial Stability Report estimates that the losses from the financial crisis between 2007 and 2010 will total a mere $3.4 trillion because the world economy is growing faster than the fund expected. Specifically, it has raised its 2010 growth forecast from 2.5 percent to 3 percent. Surprisingly, the IMF has concluded that recessions in France, Germany and Japan have officially ended. And we know the Fed thinks the U.S. slump is nearly over.

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