Sunday, June 28, 2009

BIS: Toxic Assets Still a Threat

by Bill McBride on 6/28/2009 09:52:00 PM

The Bank of International Settlements (BIS) will release their annual report tomorrow. The Guardian has a preview: Recovery threatened by toxic assets still hidden in key banks

... Despite months of co-ordinated action around the globe to stabilise the banking system, hidden perils still lurk in the world's financial institutions according to the Basle-based Bank of International Settlements.

"Overall, governments may not have acted quickly enough to remove problem assets from the balance sheets of key banks," the BIS says in its annual report. "At the same time, government guarantees and asset insurance have exposed taxpayers to potentially large losses."

... As one of the few bodies consistently sounding the alarm about the build-up of risky financial assets and under-capitalised banks in the run-up to the credit crisis, the BIS's assessment will carry weight with governments. It says: "The lack of progress threatens to prolong the crisis and delay the recovery because a dysfunctional financial system reduces the ability of monetary and fiscal actions to stimulate the economy."

It also expresses concern about the dilemma facing policymakers on when to start reining in the recovery. "Tightening too early could thwart the recovery, whereas tightening too late may result in inflationary pressures from the stimulus in place, or contribute to yet another cycle of increasing leverage and bubbling asset prices. Identifying when to tighten is difficult even at the best of times, but even more so at the current stage," it says.
Also, the WSJ has an article on the incredibly shrinking PPIP: Wary Banks Hobble Toxic-Asset Plan

I think the stress tests showed that the U.S. should have pre-privatized BofA, Citigroup and GMAC. Oh well ...

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