WASHINGTON–Blaming the fallout from a still-deepening subprime mortgage meltdown, the International Monetary Fund's Global Financial Stability Report released yesterday found things getting worse, not better.
With the credit crisis spreading to other mortgage and credit markets, the spiral is creating serious macroeconomic feedback effects, according to the GFSR.
Jaime Caruana, head of the IMF's Monetary and Capital Markets Department, said, "Financial markets remain under considerable stress because of a combination of three factors. First, the balance sheets of financial institutions are weakening; second, the de-leveraging process continues, and also that asset prices continue to fall; and, finally, the macroeconomic environment is more challenging because of the weakening global growth."
The crisis has weakened the capital and funding of large systemically important financial institutions, raising systemic risks, the report found. Such financial institutions need to raise capital or cut back assets to cope with the strains. The continued stress increases the downside risks for global financial stability and potentially forces institutions to further curtail credit, the report added, noting that the macroeconomic effects could be severe.
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