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Washington -Eurozone banks remain undercapitalized and unfit to lend at levels needed to restore sustainable growth in the currency area, where yet another recovery has stalled, the International Monetary Fund said on Wednesday.
The Washington-based crisis lender's newly issued Global Financial Stability Report included an analysis of 300 large banks across the world's advanced economies.
In the eurozone, the IMF found that banks representing about 70% of total assets were too weak to supply the credit needed to support economic recovery. The fraction of assets held by feeble banks was far lower in the other advanced economies.
"These banks will need a more fundamental overhaul of their business models," said IMF financial counsellor Jose Vinals.
The European Central Bank's comprehensive assessment of balance sheets offers a "strong starting point for these much-needed changes" in bank business models, he said.
These banks have been found to have adequate capital to survive.
"But in many countries, we need banks to be athletes who can vigorously support the recovery," Vinals said.
The IMF has been exhorting eurozone policymakers for years to adequately recapitalize banks, consolidate weaker institutions and implement steps toward banking union.
Extraordinarily slack monetary policy in advanced economies continues to support recovery, six years after the 2008 global financial crisis. Yet nearly free money from central banks has not sufficiently transmitted monetary policy through the banking system to support the real economy.
Vinals, who heads the IMF's monitoring of banking and financial markets, cited a new "global imbalance" of too much financial risk-taking building up potential instabilities, amid too little "economic risk-taking in support of growth."
"Banks are safer but may not be strong enough to vigorously support the recovery," he said. "And risks are shifting to the shadow banking system in the form of rising market and liquidity risks. If left unaddressed, these risks could compromise global financial stability."
While boosting household spending and encouraging hiring and investment by businesses, years of easy money may also encourage greater leverage and buying of riskier assets.
"Accommodative monetary policies face a trade-off between the upside economic benefits and the downside financial stability risks," the IMF said in the twice-yearly report.
