Thread: IMF claims Britain ranks among the most vulnerable economies

IMF claims Britain ranks among the most vulnerable economies and faces a bleak future

By Sam Fleming
Last updated at 1:12 PM on 08th October 2008

The world faces a 'severe and protracted' slump because of the mounting crisis in the financial sector, the International Monetary Fund has warned.

Britain ranks among the most vulnerable economies because its banks have the most over-stretched finances out of the 16 nations surveyed, the analysis showed.

The research came amid suggestions from the Liberal Democrats that the Treasury underwrite a series of share issues by major banks in order to stave off a deepening crisis.

UK lenders have already squeezed £20billion of extra cash from shareholders this year, making this the biggest year for London Stock Exchange fundraisings in a decade, according to figures from lawyers Freshfields.

The IMF said: 'Episodes of financial turmoil characterised by banking sector distress are more likely to be associated with severe and protracted downturns.'



Crisis control: The turmoil in the banks is a sign of a protracted downturn says the IMF, which is led by managing director Dominique Strauss-Kahn, pictured

It added: 'The financial turmoil that began in the summer of 2007 has mutated into a full-blown crisis.'

The downturn will be 'severe' in the US, the report concluded, leading to ripple effects across the world.

Economist George Magnus of UBS warned a recession across the Group of Seven leading nations now looks 'all but unavoidable'.

This suggests governments should take drastic measures. One answer may be for taxpayer cash to be ploughed directly into major banks, in return for equity stakes. This approach was successful in the Swedish banking crisis of the early 1990s, and may be the endgame in the current conflagration.

Lib Dem Treasury spokesman Vince Cable said: 'The government will have to lift its game and come out with bolder ideas.

'It has to be more proactive in getting more capital into the banks. One way to do is it to have a government-overseen programme to convert debt into equity. Another is for the government to underwrite rights issues.

'Sitting and waiting for things to happen on case by case basis worked before, but it can't continue.'

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Alistair Darling is expected to set forth his latest plans for coping with the meltdown on Monday, when he pushes forward with his banking reform Bill.

Leading bankers met the Chancellor earlier this week to plead for a much widerranging programme of government support.

They want a huge ' liquidity pool' to be created, allowing finance giants to obtain credit from the Bank of England against a broader range of collateral, including commercial and consumer finance loans.

Mervyn King, the Bank governor, is said to be resistant. A banking source said: 'Banks want them to do something significant, but we are not betting our houses on it.

'They may be working up ideas, but they are in the preliminary stages.' The Chancellor is under pressure to take action after Ireland introduced blanket deposit guarantees for its six leading lenders.

British banks fear this could lead to a savings exodus, as families plough cash into supposedly safer accounts.

Royal Bank of Scotland's Ulster Bank was expected to be excluded as it is foreign-owned, but Ireland has suggested that it may extend the guarantee on a case-by-case basis.

Yesterday Irish lawmakers voted the £315billion security blanket onto the statute books. Finance Minister Brian Lenihan signaled the scheme may include restrictions on bank executives' pay as a quid pro quo for state support.

http://www.dailymail.co.uk/money/articl ... s-IMF.html

And we all come crumbling down......but don't worry, all is well.....we're all just racist, proctectionist, zenophobes.