The International Monetary Fund’s financial stability reports are losing their capacity to shock. This is a shame. True, anticipated global losses on bank holdings of loans and securities between 2007 and 2010 have ceased rising. Monday’s $2,800bn figure for system-wide losses is unchanged since April. Even so, taking into account $1,300bn of writedowns recorded until the first half of 2009, global bank capital must still absorb a further hit of $1,500bn in 18 months. No bagatelle. This underlines the danger that continuing balance sheet pressure will impair banks’ ability to channel sufficient credit to sustain the nascent recovery.

European banks are still lagging behind their US counterparts in cleaning house. US banks have recognised about 60 per cent of expected writedowns, while euro area and UK ones have ’fessed up to only 40 per cent. This is mitigated by the fact that expected cumulative loan loss rates are far lower for the euro area banks, at about 3.6 per cent, than for those in the US and UK, at 8.2 per cent and 7.2 per cent respectively. Those hoping the market rally heralds write-backs should be cautious. Despite firmer securities pricing since April, further writedowns are in store on loan portfolios, which are expected to account for about two-thirds of total impairments over 2007–10.