>Special Report (ECONOMIC RESEARCH)

A radical estimate of the bank losses

International institutions regularly publish enormous estimates of banks’ non-provisioned losses: recently USD 2,200 bn or even USD 4,000 bn.

It is well known that these estimates make no sense, because they are based on the market value (actual or supposed) of assets whose market prices are meaningless, and which will be kept by the banks.

However, we can carry out a radical estimate of the bank losses by starting off with the assets held by banks and applying market prices to these assets.

Our maximum estimate of the banks’ loss (in the United States, the euro zone and the United Kingdom), nonprovisioned on assets other than loans to households and non-financial companies, is USD 1,240 bn, markedly less than the figures provided by international institutions.

What losses for the banks?

The banks (we look at the situation of US and European banks) have already significantly written down the portfolios of assets held (Table 1 in Appendix).

But international institutions (IMF, OECD) continue to publish enormous estimates of the bank’s non-provisioned losses: USD 2,200 bn, even USD 4,000 bn recently.

It is well known that these estimates are meaningless. The market prices of numerous assets have been extremely depreciated and are far below the value at which these assets
will eventually be repaid.

But we will try to reconstitute them in a simple manner by looking at the losses - at market prices - realised by the banks on their asset portfolios. Given this method, we are of course
talking about a radical and excessive assessment of bank losses.

Banks' balance sheets

We look at banks' balance sheets in the United States, the United Kingdom, and the euro zone.

On the asset side of the banks’ balance sheets we find:

− loans,
− liquidity and monetary assets, on which there are no capital losses,
− other assets: equities, government bonds, corporate and financial bonds (which includes Agency bonds, ABS, structured credit, etc.).

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