The International Monetary Fund has said the precarious state of Europe’s banks presents the biggest risk for another financial crisis.
In its latest Global Financial Stability Report, the IMF warned they need to further build up their capital – the money they keep in reserve.
The fund said lenders should do that by reducing the size of the dividends they pay out to shareholders and by retaining a greater proportion of earnings.
It highlighted British banks exposure to property loans and said there are looming funding challenge for both banks and governments struggling with sovereign debt problems, “particularly in some vulnerable euro area countries.”
Banks globally face a 2.5 trillion euro “wall of maturing debt” coming due in the next two years with the rollover requirements most acute for Irish and German banks.
The IMF says the European Central Bank’s upcoming stress tests provide a “golden opportunity” to improve bank balance sheet transparency and reduce market uncertainty.