The US$1 Trillion Crisis

Source : The Straits Times, Apr 11, 2008

THE United States sub-prime credit crisis could end up costing the world an astronomical US$945 billion (S$1.3 trillion), the International Monetary Fund (IMF) said in a report this week. That figure does not represent actual losses but is the IMF’s estimate of potential losses in the market prices of assets held by banks and other financial institutions.

The US$945 billion in losses breaks down into:

- US$565 billion for US residential loans and securities;

- US$240 billion for commercial real estate securities;

- US$120 billion for corporate loans; and,

- US$20 billion for consumer loans.

Other key points in the IMF report:

Banks are likely to shoulder about half the losses - at US$440 billion to US$510 billion.

Insurance companies, pension funds, money market funds, hedge funds and other institutional investors will account for the balance.

The US$945 billion adds up to 4 per cent of the US$23.21 trillion credit market.

Today’s credit crisis could end up being similar in dollar magnitude to the Japanese banking crisis of the 1990s, which racked up losses of US$750 billion. - AGENCE FRANCE-PRESSE