New Global Crisis Cost Estimate

Tercentenary of the Bank of England, commemora...Image via WikipediaFrom The Bank Of England

The Bank of England now estimates that losses from the credit crisis could run as high as 4.3 trillion dollars. This estimate is about double previous estimates from the bank, as well as the IMF.

The article reporting the estimate, published by The Independent, is unclear on the actual amount estimated in the report. The figure arrived at here is determined by converting British Pounds Sterling into US Dollars directly, using the figure ‘£2.8trn’ from the title..

Throughout the article found online, the author shifts among values stated in different currencies.

BoE warns credit crisis losses could hit £2.8trn

Global bank losses as a result of write-offs on mortgage-backed and other badly devalued securities will spiral to $2.8 trillion before the credit crunch is over, according to the latest estimates produced by the Bank of England.

The figure is around double the Bank’s previous estimates and calculations by the IMF. It suggests that, while the recent injections of bank capital by governments may help stabilise the financial system, it is far from fully over the ravages of the credit crisis.

The Bank says that the losses for the UK’s banks will run to £122.6bn, against a forecast of £62.7bn made in April. For the US and the euro area, it gives figures of $1,577.3bn (was $738.8bn) and 784.6bn (previously €344.1bn) respectively.

It’s important to note that these estimates are how much the banks are expected to need to write off their books. This is not necessarily the cost of a bailout, but is the direct cost to the banks before the bailouts.

Another quote from the same article:

In its October Financial Stability Report, the Bank says that “the global banking system has arguably undergone its biggest episode of instability since the start of World War I… Risks in the financial system clearly remain. Over time, against the backdrop of an economic downturn, banks will need to adjust their balance sheets and funding models, weaning themselves off current exceptional levels of official support… Lending growth will take time to recover”. A chart in the report suggests that, if the banks were forced to adjust to the shortage of capital in as short a time as a year, lending would have to be reduced next year. The £37bn of share purchases by the Treasury in the British banks, and liquidity support, should buy the banks more time; however, the reduction in the growth of lending, even over a lengthier adjustment, will still be sharp.


The Bank also warns of some particular weaknesses in the financial system. Leveraged investors such as hedge funds, says the Bank, “may be forced to liquidate asset holdings due to tighter credit conditions”. Insurance firms “seem relatively well placed”, the report says, but “risks could arise, however, if the value of insurance companies’ investments were to fall below regulatory capital requirements”.

In other words, the banks will be perfectly contented to sit back and watch everybody around them fall because of a credit crunch they are causing.

All this cash that nearly everyone on the planet by now is being asked to pledge, via taxes on us and our grandchildren, all this money being handed to the bankers is supposed to FREE UP the credit a bit more.

It’s supposed to make it easier for the farmer to make this year’s loan. Easier for the next fishing season to get funded. Easier for the next brilliant idea to become the thing we can’t live without.

And these guys are telling us, in advance, that they aren’t going to ease up on the credit. They’re telling us in advance that they are going to tighten it further.



Of course, I am talking about something in England. Those quotes are from the British bankers, not the guys up in New York and DC.

The American bankers would never say something like that, would they?


I am Jon, and I reckon our bankers wouldn’t need to say nothin’.