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2011-09-22 04:02:35
The International Monetary Fund has warned that the global financial system is
more vulnerable now than at any time since the 2008 financial crisis.
Some European banks are particularly weak and "urgently need to bolster their
capital levels", the IMF said in its Global Financial Stability Report.
It said time is "running out to tackle vulnerabilities" that threaten the
banking system and economic recovery.
On Tuesday, the IMF cut economic growth forecasts for Europe, the US and Japan.
Extra funds
The IMF's twice-yearly stability report said the risks to banks and financial
markets had grown.
Fearful that some governments could default and that the global economy may
return to recession, banks may start conserving cash, cutting access to capital
and increasing borrowing costs.
As intra-bank lending freezes, the weaker European firms will struggle.
Europe should consider tapping its Financial Stability Facility - a fund set up
to provide aid to indebted countries - to support their weakest banks, the IMF
said.
"Some European banks urgently need to bolster their capital levels," the report
said.
"In current market conditions, however, this may not always be possible, so
public backstops, first at the national level and ultimately through the
European Financial Stability Facility should be used to provide capital to
banks as needed."
The Washington-based IMF estimates that the eurozone debt crisis has directly
cost banks in the European Union 200bn euros ($273bn; 176bn) since the end of
2009.
The 187-member group is holding its annual meeting at the end of this week in
Washington, bringing together finance ministers and central bankers from around
the world.
The report also said: "Restoring confidence in the stability of the US housing
market is the key to bolstering the prospects for US banks."
On Tuesday the IMF's chief economist, Olivier Blanchard, said that "Europe must
get its act together", and he criticised its leaders for being "one step behind
the action".
The IMF also cut its growth forecasts for all the major European economies.