The situation in financial markets and the European Union's banking sector has worsened since last round of stress tests on banks earlier this year, the European Commission said today.
Separately, the IMF said up to €200 billion could be needed to be injected into the European banking system to win back investor confidence.
"We are aware of what is happening on the markets and the effect it has on European banks," a European Commission spokeswoman told a regular press briefing. "As regards the stress tests... the reality is that the situation has worsened since then, but the immediate problems are more about liquidity than solvency."
European banks are better capitalised than they were a year ago, but the euro zone's sovereign debt crisis has had a negative impact on the banking sector, another commission spokesman said.
Commission officials would not comment on the possible size of any necessary recapitalisation for European banks, adding that there was no concrete EU-wide plan at this stage.
But the IMF's European department director Antonio Borges said Europe needs between €100 billion and €200 billion to recapitalise its banks to win back investor confidence and should put in place a comprehensive plan across the continent.
"We are talking about figures of between €100 and €200 billion, which in our view is very, very small compared to the size of the European capital markets and compared to the resources of the new, enhanced EFSF," Mr Borges said during a visit to Brussels, referring to Europe's bailout fund.
"There has been a lot of talk about French banks, but ... the problem is very widespread," he said. "No banking sector in the world can sustain a generalised loss of confidence and we need to restore that confidence all over Europe."
Mr Borges also said the IMF would "definitely participate" in a second bailout package for Greece if the Washington-based lender was happy about the country's determination to solve its debt problems.
"If there is a second programme for Greece, which is the expectation, I think the IMF will definitely participate on the condition that we remain convinced that Greece is on track and the right policies can be put in place, that debt can become sustainable," he said.
Mr Borges said he could not see the European Central Bank playing a central role in increasing the capacity of the euro zone's European Financial Stability Facility (EFSF) bailout fund.
"When people talk perhaps loosely about leveraging the EFSF, they have in mind using the EFSF in a very targeted manner in order to bring other investors back to the market for sovereign debt, an intervention that would restore confidence," he said. "I think everybody is aware that even this much larger EFSF has limited resources and has to be used efficiently."
Mr Borges also said investors had valid concerns about a possible recession. But he denied that IMF-mandated austerity programmes and government spending cuts were to blame for the slowing economies, rather the loss of confidence stemming from vulnerable weak banks and the region's huge debts.
Recession worries are "more related to problems in the financial sector and the possibility of a real credit crunch, rather than what is happening on what is happening on the fiscal front," he said.
The European Commission today said it was closely following the situation of France-Belgian banking group Dexia, which has been battered by exposure to Greece and problems accessing wholesale funds.
"It's important that the governments concerned address this issue in a coordinated manner," EC spokeswoman Pia Ahrenkilde Hansen told a regular briefing. "All new state aid will of course need to be notified and approved by the Commission."
Reuters
