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Losses from credit crunch down to £10 trillion

The Bank of England has revealed that total worldwide losses from the financial crisis have been reduced by a third to £10 trillion.

Within its June Financial Stability Report, the BoE revealed the economic crisis is easing somewhat – within its March report it estimated world losses of £15 trillion. It says around £5 trillion has been recouped thanks to equity markets rising by 30 per cent.

But it says UK banks’ balance sheets are still very sensitive to any setbacks in recovery in financial markets or real activity thanks to their high levels of leverage.

The report warns that disruption to funding markets could arise from rising sovereign and cross-border risks, or banks’ asset values might deteriorate due to higher losses, perhaps on emerging market and commercial property exposures.

To continue to strengthen the banking sector, the Bank says that market discipline need to be strengthened through “richer and more frequent public disclosures by banks”.

It says it would like to see improvements made to disclosures on asset valuations and liquidity profiles. It says by banks offering more information more regularly, it would provide a fuller picture of banks’ true risk profiles. The report says: “Banks should also offer insights into uncertainties about balance sheet positions, including the results of economically plausible stress tests.”

The report reveals that losses at major UK banks rose from £150bn to £400bn between October and December 2008. The banks have subsequently raised around £100bn to combat the loses.

Losses on residential mortgage backed securities have also been reduced – the Bank now estimates that globally £791bn has been lost from the value of RMBS, compared with £1.1 trillion in March. Total losses on all debt instruments are down from £2.8 trillion to £1.65 trillion.


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