IMF Says EU Banks Face Further Losses

“With anemic economic growth likely to lead to more losses on loans, risks to the financial stability of the European Union remain “elevated,” and urgent action is needed to adequately capitalize the bloc’s banks and establish a shared system for closing down or restructuring failing institutions, the International Monetary Fund said Friday.

In its first-ever review of the health of the financial system across all 27 EU members, the IMF said the bloc has made some progress in addressing the weaknesses that have exacerbated its fiscal crisis and stalled its economic recovery.

But it said much work remains to be done, with banks likely to face higher losses on loans to households and businesses to add to the losses they have suffered on their holdings of government bonds. The Fund added that low economic growth and low interest rates may also weaken insurance companies and pension funds.

“Risks remain elevated, especially in a context of low growth and fiscal retrenchment,” the IMF’s board of directors said. “Regulatory and policy uncertainty, and gaps in policy frameworks also continue to pose vulnerabilities. Further ambitious steps are thus necessary to rebuild confidence and achieve long-lasting financial stability in the region.”

The Fund recommended that bank regulators quickly review the quality of banks’ assets, “based on harmonized definitions of forbearance and non performing loans.” Since the onset of the euro zone’s fiscal crisis, investors have been skeptical of the self-declared soundness of the bloc’s banks, and that has made them unwilling to provide funding to banks…”

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