IMF urges Europe to bolster banks

WASHINGTON: The International Monetary Fund on Friday called on Europe to strengthen banks that flunked or nearly flunked stress tests amid turmoil over the eurozone debt crisis.

The IMF "strongly advocates that the necessary measures are taken to effectively address weaknesses not only in institutions that have 'failed' the test, but also in those that have only narrowly passed it," the Washington-based institution said in a statement.

The IMF, which is partnering with the European Union in financial rescues of Greece, Ireland and Portugal, welcomed the tests of whether the banks meet the European Banking Authority's new capital requirements.

In the results announced Friday, just eight of 91 banks failed: five Spanish banks, two Greek banks and one Austrian bank.

They had a combined capital shortfall of 2.5 billion euros ($3.5 billion), the regulator said.

Investors had expected between 10-15 institutions would not measure up, amid deep worries over their exposure to the eurozone debt crisis, which has spread to Italy and Spain.

"The outcome of the exercise reflects efforts made by individual institutions and national supervisory authorities to strengthen bank balance sheets, but more needs to be done," the IMF said.

The Fund said it was "important" that national authorities had promptly committed to address the pockets of vulnerability detected through the stress test exercise.

"More generally, in light of the current turmoil, the Fund would emphasize the importance of further strengthening capital buffers," it said.

Critics of the stress tests said they failed to include the impact of a formal debt default by a European government, a rising risk now haunting the European banking sector.

The IMF praised the EBA's "strengthened methodology and assumptions" in the tests and its publication of "very detailed information" on the results.

"We hope that this elevated degree of transparency becomes a permanent feature at the level of national jurisdictions," the Fund said.

Copyright AFP (Agence France-Presse), 2011