Europe’s debt ‘risks financial stability’

IMF report says vulnerability of banks threatens financial system Risks of a fresh banking crash have diminished over the past six months but the financial system remains fragile four years after the crisis that took the global economy to the brink of meltdown, the International Monetary Fund (IMF) said. In its half-yearly Financial Stability Report, the Washington-based IMF said the sovereign debt problems affecting Europe and the vulnerability of banks posed key downside risks to stability and economic recovery. The IMF advised policymakers in member countries to address the legacy of high debt burdens in rich western economies, to develop a more robust financial system, and to guard against the overheating and build-up of financial imbalances in emerging nations. Low interest rates and quantitative easing had boosted the appetite for risk, the IMF said, warning that “easy monetary and liquidity conditions may be masking underlying vulnerabilities”. It added that rising expectations of higher interest rates in the face of growing inflationary pressures could result in funding risks for vulnerable sovereign states and banking systems. Since the last IMF meeting in October, Ireland and Portugal have joined Greece in requiring bailouts to see them through their financial difficulties. “Sovereign balance sheets remain under strain in many advanced economies, as illustrated by increased sovereign bond market volatility in some euro area countries over the past six months,” the report said. It said UK banks were exposed to weakness in the residential and commercial property markets, with household debt remaining high. “Banks face pressure on the asset side of their balance sheets because of concerns about the quality of bank exposures,” the IMF said. “This is particularly the case for exposures to real estate – either residential or commercial – in Ireland, Spain, the UK and the US.” IMF European debt crisis Financial crisis Global economy Economics Global recession Banking European banks Ireland bailout Portugal Greece Larry Elliott guardian.co.uk

Posted by on April 13, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.