Ahead of the US Federal Reserve meeting that is expected to cut US interest rates, the London-based Sunday Times has reported that global investment banks are likely to reveal a loss of about $30 billion due to bad debts linked to the global credit crunch.

Analysts are of the opinion that the Fed would step in to prevent a downturn in the housing market and the credit crunch from severely affecting the US economy by reducing interest rates from 5.25 per cent by 0.25 or 0.5 percentage points at its tomorrow''s meeting.

They say that lower interest costs would prompt consumers to spend and invest more, thus revitalising the economy. Moreover, former Fed chairman, Alal Greensopan has been quoted as saying, here was a "very large" inventory of unsold, newly built homes putting pressure on builders to sell them quickly.

As a result, "we have the capability of far bigger price declines," which will pinch home equity, lead to more defaults on sub prime mortgages and pressure consumer spending, Greenspan was quoted by The Wall Street Journal.

The rate cut expected to be announced tomorrow, would be the first since June 2006 and the first under the leadership of Ben Bernanke, who took over from Alan Greenspan as Fed chairman in February last year.

The current debt market crisis, caused by the US sub prime market crisis, has led to unwillingness among investors to reinvest in some loans. Since these sub-prime loans have been sold on to banks and other institutions, it has been difficult to gauge who has exposure to the losses, and to what extent they threaten the lenders. Therefore, apart from their involvement in bad debt, investment banks are also expected to reveal their exposure to commercial paper that helps raise short-term cash flows, which are rolled over and reinvested on maturity.

also see : General reports on Banks & Financial Institutions