Fund warns EU banks on low cash

Many
European banks need bigger capital cushions to stop them being a risk to the
global financial system and precipitating another crisis, the International Monetary
Fund said.

Such
banks are “caught in a maelstrom of interlinked pressures” the IMF
said.

The
low levels of capital make some German banks, as well as weak Italian,
Portuguese and Spanish savings banks, “vulnerable to further shocks”.

But
it said global financial stability had improved in the past half year.

The
findings came in the IMF’s Global Financial Stability Report.

“Remaining
structural weaknesses and vulnerabilities in the euro area still pose
significant downside risks if not addressed comprehensively,” it said.

The
IMF also warned of an impending funding challenge for banks and nations still
grappling to come to terms with sovereign debt problems.

US banks built up capital in 2009,
after regulators completed stress tests that revealed some large holes.

But
European banks still need to raise a “significant amount of capital”
to regain access to funding markets.

And,
overall, banks globally face a $3.6tn (£2.2tn) “wall of maturing
debt” coming due in the next two years, with banks in the Irish Republic
and Germany facing particular pressures.

The
IMF also said that, among advanced economies during 2011, Japan and the US faced the largest public debt
pressures.

“While
the United States and Japan continue
to benefit from low current (borrowing) rates, both are very sensitive to a
potential rise in funding costs,” it said.

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