IMF euro bank worries

The recovery of the euro area's weakest economies continued to be jeopardized by banking woes in the bloc, the International Monetary Fund said in its latest twice-yearly Global Financial Stability Report on Wednesday.

"In the euro area, the incomplete repair of bank and corporate balance sheets continues to place a drag on the recovery," said IMF Monetary and Capital Markets Director Jose Vinals.

The Washington-based crisis lender called on European policymakers to put an even greater emphasis on rigorously checking the health of the banking system and implement a "determined cleansing" of balance sheets. Unviable banks needed to be closed down, the report concluded.

Repercussions of FED policies

The IMF appeared alarmed about the European Central Bank's record-low interest rates not having translated into a stronger flow of credits to smaller companies and households in the region's most stressed economies.

Looking at the big picture, the IMF said financial stability had improved somewhat in many advanced economies since its last report in October, but it added things had worsened a bit in some emerging markets.

"Emerging market risks have risen as external conditions have tightened and the tide of liquidity has turned," the lender said. It feared asset price moves might be amplified by lower market liquidity, meaning "more investors could be found running for the exit than the exit door could accommodate."

hg/dr (dpa, IMF)