IMF warns on funding of European banks

The funding of banks and governments, especially in some vulnerable euro area countries, poses a “pressing challenge” to the global financial system even as stability improves elsewhere, the International Monetary Fund said.

European banks needed to increase the quality and quantity of their capital to regain access to funding markets and would probably need help from governments, the fund warned.

At the same time, financing conditions are still “tense” for some European countries, which run the risk of having to rely increasingly on their domestic investors to sell debt, it said.

“At the heart of the global financial crisis was an abrupt rediscovery of credit risk,” the IMF wrote in its Global Financial Stability Report.