Calls for banks to disclose subprime losses

by Richard Kilner

Story link: Calls for banks to disclose subprime losses

Analysts are calling on banks to fully disclose all their losses from the US housing slump to prevent unallayed anxiety from exacerbating the credit crunch. The calls come in the wake of the first co-ordinated action between a number of major central banks since the terrorist attacks in 2001.

Michael Schubert, an economist with Commerzbank, has warned that the central banks have done all they can to try and increase confidence in the financial markets.

Gilles Moec, of the Bank of America, has called for the private sector to state clearly who has lost out, and how much.

The crucial link between information and confidence is what is driving the calls for losses to be disclosed.

Given the current financial situation, businesses could face even tighter spending and the prospect of a possible US recession.

Moec has said that the key to resolving the present crisis is for public disclosure of the losses entailed from the US housing slump.

Banks are not aware of the losses they have taken, and so have stopped lending to one another. Disclosing losses would fill the gap created by uncertainty with knowledge and confidence, and it is hoped would prompt a return to interbank lending.

Philip Shaw, Investec Securities top economist, has said that the current situation is such that a medium-sized bank wanting to borrow on the interbank market for three months has no chance of success.

Banks are hoarding cash to protect themselves, with the result that some of them are not even lending money to anyone else for longer than a week, causing the interbank loan market to seize up.

Shaw added that should the struggling bank Northern Rock go under a house of cards situation would be faced.

Schubert has warned that the concerted effort of the US Federal Reserve, the European Central Bank, the Bank of England and the Bank of Canada would not solve the present crisis.