The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.

Bank deleveraging has barely started

The government bail out packages unveiled across developed countries last month may have prevented the collapse of a host of banks with more toxic assets than equity.

Unfortunately for those policymakers hoping banks will now repay taxpayer support by lending to boost their national economies, a narrow escape is not the prelude to robust extension of new credit.

The patient may have been resuscitated but is still slumped on his bed in the emergency ward: he is not merrily jogging back to work.

The IMF’s global financial stability report has estimated that total writedowns from the sub-prime mortgage and structured credit disasters will reach $1.4 trillion before this is over, with banks on the hook for between $725 billion and $820 billion of that. By mid October, banks had written off $635 billion, putting maybe 80% of the problem behind them. But they had raised just $420 billion of capital.

That still leaves a gap for government capital to fill – and governments are the only source, with private equity and sovereign wealth funds nursing losses from rescue issues they began a year ago – just to deal with the old problem.

A new problem is looming: higher personal and corporate loan defaults in a global recession. The downturn in the credit cycle is only just upon us. Banks will consume even more capital in dealing with the losses yet to come.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.


Unlimited access to and

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually


Unlimited access to and, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors


Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree