IMF Confirms What Bank Stocks Already Show

February 5, 2009 by Douglas A. McIntyre

R218533_855025_2Bank of America (BAC) hit another 52-week low today at $3.77. Wells Fargo (WFC) got close.

The IMF said that that the banking crisis is far from over.

"Policy actions to resolve the financial crisis have been broad in scope, but have not yet achieved a decisive breakthrough," the IMF said, according to MarketWatch.

While to a large extent this is stating the obvious, it is likely to put more pressure on the central banks in the US, UK, EU, and Japan to make a decision about what they will do with their most troubled financial firms. One of the questions no one has answered is whether it makes a difference that Japan solved it problem by taking a completely different route than the US.

The three options most often mentioned for fixing the credit mess are: 1) a nationalization of troubled banks; 2) guaranteeing their bad assets; or 3) taking those assets off of their balance sheets and sweeping them into a so-called "band bank." Each solution costs taxpayers a lot of money. No one may know how much that is for years when the value of the bad paper has resolved itself.

Because private banks have done business with one another across borders for decades. the relationships among firms like Barclays (BCS), Citigroup (C), and Deutsche Bank (DB) have been a matter of private enterprises working under lax government regulations. If a US bank is actually owned by the government, how does that change the nature of its transactions with a bank in the UK which simply has a portion of its bad assets guaranteed?

The global banking system is about to get exponentially more complex.

Douglas A. McIntyre