The IMF said that while near-term risks had abated in response to loose central bank policies, reforms to repair ailing banks were not yet complete and could pose a threat to future stability, particularly in Europe.
“While major UK and core euro area banks have been actively de-risking and deleveraging . . . more needs to be done to complete the repair of their balance sheets,” the IMF said in its half-yearly Global Financial Stability Report.
It came as Jens Weidmann, Germany’s central bank chief, warned that Europe could take ten years to recover from the crippling debt crisis. “Overcoming the crisis and the crisis effects will remain a challenge over the next decade,” Mr. Weidmann told the Wall Street Journal. “The calm that we are currently seeing might be treacherous [if countries delay reforms].”
The IMF said that recent events in Cyprus were an “important reminder of the fragility of market confidence”. It urged governments to make “sustained progress” with implementing a banking union.
The IMF called for greater co-ordination to address bank weaknesses, and said that progress so far had been “uneven”. “Without greater urgency towards international co-operation and comprehensive bank restructuring, weak bank balance sheets will continue to weigh on the recovery and pose ongoing risks to global stability,” the IMF said.
