IMF says world banks not out of danger zone yet

Four years after the financial crisis began the IMF said confidence in the world banking system was yet to be fully restored, with many advanced nations still "living dangerously" – and huge flows of volatile capital into emerging market economies were creating fresh threats to financial stability and global recovery.

Adding to recent criticism of the slow pace of America's attempts to reduce its borrowings, the IMF's Financial Counsellor, José Viñals, said that, because of their huge debts, both the US and Japan were "vulnerable" to any rise in interest rates unless they took "decisive action... over the medium term".

The IMF said the banks were far from fixed, and those in Europe were especially "weak", with about a third of the EU's banks operating with inadequate capital buffers. "Structural weaknesses and vulnerabilities in the euro area pose downside risks".

However, Mr Viñals was more encouraging on the largest single threat to the survival of the single currency – a Spanish sovereign debt crisis. He said Spain had "decoupled" from the problems experienced by Greece, Ireland and Portugal, although the authorities would need to continue to work hard to regain the confidence of the markets. He saw no need for Greece or Ireland to default or "restructure" their debts.

The "good news", Mr Viñals said in launching the IMF's latest global Financial Stability Report, was that risks have declined since the last review in October, thanks to the gradual economic recovery and a continuing support from central banks keeping interest rates low and governments keeping spending high.

The "not so good" news was that those monetary and fiscal polices were "masking" serious underlying fiscal vulnerabilities, and the "legacy of debt" in many rich economies was weighing on household, financial and national balance sheets, leaving risks high.

Looking forward to the EU's next round of bank "stress tests" in June, Mr Viñals urged the authorities to ensure these were sufficiently "credible, ambitious and stringent". IMF analysis revealed some 30 per cent of European banks, representing a fifth of total asset base of the system, had tier one capital ratios of less than 8 per cent, and were thus inadequately capitalised and unable to obtain cost-effective funding.

Too many European financial institutions, said Mr Vinals, "should not be there" and he encouraged the regulators to quicken the pace of recapitalisation, reconstruction or resolution of these banks. "This weak tail of banks is creating excess capacity and raising funding costs for other banks as well."

Mr Viñals also hinted strongly that the next major international financial crisis is likely to come from "overheating" emerging markets.

Large and volatile capital flows that have flooded into markets in Brazil, India, China and other countries promising rapid growth and high returns for investors. The pace of expansion of bank credit in some of these countries was now so high that the danger was growing of a new crop of underperforming loans, which in turn would lead to stress in their banking sectors and dislocation in their real economies – in effect a rerun of the West's financial crisis, albeit from a stronger base.

Start your day with The Independent, sign up for daily news emails
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant - Swiss Banking and Finance

£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...

Ashdown Group: Marketing Executive - 6 month FTC - Central London

£25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...

Ashdown Group: Junior Project Manager (website, web application) - Agile

£215 per day: Ashdown Group: Junior Project Manager (website, web application ...

Guru Careers: Software Engineer / Software Developer

£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before