UK faces jump in banking bail-out costs, IMF warns

The International Monetary Fund (IMF) raised its estimate of the total cost of the credit crunch to $4.1tr yesterday and warned that the cost to the UK of financial rescue could amount to almost 13.4 per cent of GDP. The amount would be the most of any advanced country, except Ireland, and would mean a total spend of £200bn, £3,000 for every UK citizen.

The forecasts came in the IMF's Global Financial Stability Report which was published yesterday and immediately caused controversy on its release. The Government claimed the number was too high and didn't take into account support measure already taken to improve the economy. The IMF itself seemed to suggest that the figure was the top of a range being forecast by the organisation, later changing it to £130bn.

The Conservatives quickly seized upon the numbers, saying that official government estimates put taxpayer losses from the banking sector likely to come in at around £60bn, with Shadow Chancellor George Osborne criticising "the potentially massive cost of Gordon Brown's utter failure to regulate the banking system".

Peter Dixon, an economist at Commerzbank, said: "This is a bleak number and there is clearly still some way to go, and the banks face much more pain." He added, however: "This number is the worst-case scenario."

WHAT THEY ARE SAYING
Robert Peston, BBC: "Many may agree with the IMF's analysis and its desire that banks, including British ones, should raise more capital sooner rather than later. But the power to force banks to raise additional capital rests with national regulators, such as the FSA, not the IMF. And if the FSA doesn't believe that banks have an urgent need to raise capital, then banks won't raise massive amounts of additional capital (barring the disclosure of booboos that have somehow remained hidden)."

John Kay, Financial Times: "The past two years have not enhanced the reputation of economists. Mostly they failed to point out fundamental weaknesses of financial markets and did not foresee the crisis, and now they disagree on appropriate policies and on the likely future course of events. Although more economic research has been done in the past 25 years than ever before, the economists whose names are most frequently referenced today, such as Hyman Minsky and John Maynard Keynes, are from earlier generations."

David Wighton, the Times: "The Treasury disputes the IMF's forecast that the ultimate cost to the taxpayer of government support for British banks will be £200billion. Alistair Darling is expected to suggest a figure nearer to £60 billion in today's Budget. Although the balance sheets of Britain's banks have been stress-tested by the Financial Services Authority, the IMF predicts that they will experience further losses of $200 billion over the next two years, which will require $125 billion of new capital just to bring them back to pre-crisis levels. The Bank of England yesterday reported only tentative signs of growth in new bank lending. Without that, Mr Darling's Budget measures to boost recovery are likely to fall flat." ·