Global finance could lose $2.8 trillion in crisis

The global financial system could lose $2.8 trillion to the credit crisis, the Bank of England said on Tuesday, before an expected interest rate cut in the United States that others are poised to match.

Governments have agreed to inject around $4 trillion into banks and markets to contain the worst financial crisis in 80 years, which has forced stock markets to tumble and banks out of business, hastening a recession in much of the world.

Japan restricted investor bets on falling share prices with immediate effect to try to end a stock market slide, which has particularly hit its banking sector, and tried to talk down a rallying yen that threatens to deepen its economic downturn.

European shares gained 0.9 percent and Japan's Nikkei climbed 6.4 percent after hitting lows not seen in 26 years.

Prime Minister Taro Aso delayed a parliamentary election to take steps to concentrate on protecting Japan, the world's second biggest economy, from global recession.
The Bank of England (BoE) said the work so far in containing the crisis should calm the banking system but was cautious about the impact on the wider economy. It projected losses globally at $2.8 trillion.

"The instability of the global financial system in recent weeks has been the most severe in living memory," said Deputy Governor John Gieve. "And with a global economic downturn under way, the financial system remains under strain."

The BoE is expected to cut interest rates next week, a move the European Central Bank and the Federal Reserve are also expected to take to try to encourage more spending in economies increasingly fearful of a long, deep recession.

The consensus among Fed watchers is for a half-point cut in overnight rates to 1 percent, the lowest level since June 2004. It has already cut the benchmark federal funds rate to 1.5 percent from 5.25 percent over the past 13 months.

It will announce its decision on Wednesday. The ECB and Bank of England are expected to cut rates on Thursday next week.

Source: EconomicTimes