Is $1 Trillion a Big Number?
Well, it does take one’s breath away that the IMF now estimates that the financial crisis will result in $1 trillion in losses, about four times the total booked as losses to date by large financial institutions.
I’m not entirely assure of the appropriate denominator to judge the percentage impact of this crisis on total financial system assets, but global bank assets total $71 trillion ($1.9 trillion in Canada) and global private debt securities total another $43 trillion. Total global bond, equities and bank assets combined come to a hefty $190 trillion, of which $133 trillion are in North America and the EU combined. (See Table 3 Selected Indicators of the Size of Capital Markets, 2006. IMF Global Financial Stability Report, October, 2007.)
On the other hand, given current capital adequacy requirments, reduced bank assets of $1 trillion (though the hit certainly won’t be all on the banks) would reduce bank lending by about $10 trillion – definitely a non trivial share of annual global GDP.
So, its a big hit, but is it big enough to be “the big one”?