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IMF Hopes For $1.3 Trillion Increase

IMF Hopes For $1 Trillion Increase

IMF Chief Christine Lagarde

The International Monetary Fund may be hoping to increase its financial resources from $940 billion to at least $1.3 trillion, according to a newspaper report out Monday.

The German newspaper Frankfurter Allgemeine Zeitung said two “models” were currently being examined to increase the IMF’s resources, without stating its source.

It follows comments on its lending capacity by managing director Christine Lagarde in an action plan released Saturday.

“Our lending capacity of almost $400 billion looks comfortable today but pales in comparison with the potential financing needs of vulnerable countries and crisis bystanders,” Lagarde said.

But before the quota reform can take effect, a sufficient number of national parliaments must ratify it. About 40 have done so, of the 113 needed.

“It will be useful to discuss, soon, the needs and contingency options,” she added.

The plan to increase the The European Financial Stability Facility resources is the crucial part of a three-pronged strategy being designed by German and French authorities to stop the eurozone’s debt crisis spiraling out of control.

Two important points: this newest plan includes a large-scale recapitalization of European banks and a plan for an “orderly” Greek default.

Recapitalization can be done for a number of reasons: ensuring against a hostile takeover, minimizing tax losses or implementing an exit strategy for venture capitalists. Companies often want to diversify their debt-to-equity ratio to improve liquidity (the degree to which an asset or security can be bought or sold in the market without affecting its price).

A good example is when a company issues stock in order to buy back debt securities, thereby boosting its proportion of equity capital as compared to its debt capital.

However, what Lagarde and the IMF are most likely advocating is a “leveraged” recapitalization of the banks, that is, a change of the capital structure of the banks by substituting equity for debt by issuing bonds to raise money, and by using that money to buy the company’s stock or to pay dividends.

Restructuring a bank using this method involves a deposit insurance fund, as in a bailout of a failing bank, where the insurance fund pays the acquiring bank the difference between the book value of a troubled bank’s assets and the estimated market value. The insurance fund may also take an equity position in the restructured bank.

This is a sticky situation to get into because leveraged recapitalization in a bank increases its liabilities (because of the extra debt) while reducing its equity.

Timothy Geithner, the US Treasury Secretary who proposed an increase to the The European Financial Stability Facility at the Ecofin meeting on September 16, said that the sovereign debt pressures and banking strains in Europe were “the most serious risk now confronting the world economy,” reports the Telegraph.

Larry Summers, Barack Obama’s former chief economic adviser who was attending his 20th IMF meeting, said: “I have not been at a prior meeting at which matters have had more gravity.”

A November 2010 agreement doubled the permanent contributions, or quotas, of the IMF’s member states.

According to the Telegraph, Christine Lagarde said that the priority of international authorities this week must be “implementation, implementation, implementation” of the bail-out agreement of July 21.

The Associated Press contributed to this report.

Comments (20)

  • RT4
    Posted on September 30, 2011 at 6:30pm

    The IMF should cut waste spending.They arepro riding funds to countries with authoritarian regime.
    _

    Report Post »  
  • Gypsy123
    Posted on September 28, 2011 at 7:52pm

    Those long paid vacations and half days of work have come home to roost in Europe. They party all night sleep all day and then go on vacation oh well Cest le vie

    Report Post » Gypsy123  
  • Boydster
    Posted on September 28, 2011 at 7:29pm

    …Goodbye Sweetpea.
    Says Germany.
    Socialist Greece.
    So fall into the sea.

    Europe holds you.
    Europe told you.
    Europe molds you.
    Europe folds you.
    ……………………………………By your own rope.

    Written by, CBF all rights reserved. copyright 2011

    Report Post » Boydster  
  • elosogrande
    Posted on September 27, 2011 at 2:18pm

    The U.N, the European Union, and the IMF have one thing in common since they were founded. They have cost the American Taxpayers a fortune, which can never be recovered.
    Tell them all that we want the unpaid WWI & WWII war debt paid back with interest. Tell them ee want to be paid back for all of the money and American lives our government has pissed away to protect these declining countries, who produce only waiters and doormen, leaving Americans to do the heavy lifting when some piece-of-crap country like The Soviet Union threatens them.

    Twel them that it’s there turn to fix things. If they can’t do it, screw ‘em. They have nothing that we can’t do without.

    Report Post »  
  • Eblaze44
    Posted on September 27, 2011 at 1:05pm

    The IMF, like the US Federal Reserve, needs to be abolished. It‘s all the same corrupt scheme and it’s always the US taxpayers that pick up the tab.

    Report Post » Eblaze44  
  • chicago76
    Posted on September 26, 2011 at 6:56pm

    Either individual countries go down in flames or we all go down in flames. The IMF is playing it that we all go down in flames.

    Report Post »  
    • 1casawizard
      Posted on September 26, 2011 at 9:41pm

      This looks like a skam. I hope we don’t fall for another one.

      Report Post » 1casawizard  
  • elphi43
    Posted on September 26, 2011 at 5:07pm

    Too late IMF, Obama took from Peter and Paul, and is still blaming it on Bush.

    Report Post » elphi43  
  • LWRC6.8
    Posted on September 26, 2011 at 4:52pm

    Think that the current Welfare system is corrupt and needs changing? Help reform the current system and end the waste and corruption by signing the petition. http://wh.gov/4gw

    We have 30 days to gather only 150 votes for it to go live on the whitehouse’s website. Also, It would be a great help if you could please forward the link to family and friends if you agree with this.
    thanks!

    http://wh.gov/4gw

    Report Post »  
  • Race
    Posted on September 26, 2011 at 4:15pm

    Steal more to redistribute more. Here’s an idea, let the “global economy” go down in flames as it so richly deserves. When the dust settles let everybody go back to running their own economies for better or worse. That way when some country overspends and has riots in the streets the whole planet doesn’t have to suffer from their stupidity. As I recall that system used to work pretty well. The current system obviously doesn’t.

    Report Post » Race  
    • Servant Of YHVH
      Posted on September 26, 2011 at 5:08pm

      AMEN! Let it go down in flames, especially if they “hope” to use our money to do this with.

      Report Post » Servant Of YHVH  
    • 1casawizard
      Posted on September 26, 2011 at 9:38pm

      You’re right Race, You have to take care of yourself before you can take care of others. WE have alot to take care of HERE. There is always gonna be someone with there wanting money.

      Report Post » 1casawizard  
  • NOBALONEY
    Posted on September 26, 2011 at 4:06pm

    IMF is setting up an even bigger house of cards. The recent deal that IMF announced includes that private investors in Greek debt have to accept a 50% reduction. Besides that where’s all these funds coming from? Bonds, Sovereign funds? Your quess is as good as anyone’s!

    Report Post » NOBALONEY  
  • Chucktowner
    Posted on September 26, 2011 at 3:48pm

    Crisis Bystanders? Just WTF is a Crisis Bystander? Again, the intellectual elitists are making up words to sell their BS.

    Do I qualify as a Crisis Bystander? If so, wheres my money??

    In a July 2011 report avail at http://www.imf.org/external/pubs/ft/survey/so/2011/RES072211A.htm
    They do not clearly define Crisis Bystander, but the assumption is that it used as a noun. A country suffering financial loss as a result of a financial crisis of another country would be a crisis bystander.

    Welcome to the New World Order boys and girls….it’s gonna suck!

    Report Post »  
  • santramir
    Posted on September 26, 2011 at 3:19pm

    no need to stating any source!!! what moron ignores the sources as usual are the everybodies’ on earth pocket of the human kind income plus the royalties of the lands and oceans derived businesses

    Report Post » santramir  
  • Rickfromillinois
    Posted on September 26, 2011 at 3:08pm

    Cut to the chase. How much is this going to cost us?

    Report Post » Rickfromillinois  
    • Blackhawk1
      Posted on September 26, 2011 at 3:57pm

      Oh just the difference between 940 Billion and 1.3 Trillion.

      Report Post » Blackhawk1  
  • biohazard23
    Posted on September 26, 2011 at 3:04pm

    “The German newspaper Frankfurter Allgemeine Zeitung said two “models” were currently being examined to increase the IMF’s resources, without stating its source.”

    OK, here’s the deal, kids. The 2 models are Alessandra Ambrosio and Adiana Lima, therefore making their source the Victoria’s Secret catalog.

    Report Post » biohazard23  

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