Awwal 10, 1432 / April 14, 2011, SPA -- Many European banks need larger capital cushions to restore market confidence and help reduce the risk of another financial crisis, the International Monetary Fund (IMF) warned Wednesday. Globally, banks face a $3.6 trillion "wall of maturing debt" coming due in the next two years. The maturing requirements are most serious for Irish and German banks, the IMF said in its Global Financial Stability Report. "These bank funding needs coincide with higher sovereign refinancing requirements, heightening competition for scarce funding resources," the IMF said. Increasing the quantity and quality of capital would provide a greater cushion against future losses and help restore access to funding markets, it added. Overall, the IMF said global financial stability has improved over the past six months. The most serious challenges in the coming months will be funding of banks and sovereigns, particularly in vulnerable euro-area countries, it said. U.S. banks strengthened capital buffers in 2009, when regulators completed a set of stress tests that revealed some large vulnerabilities. But European banks still need to raise a "significant amount of capital" to regain access to funding markets, the IMF said. The European Central Bank's upcoming stress tests provide a "golden opportunity" to improve bank balance-sheet transparency and reduce market uncertainty about the quality of assets on banks' books, the IMF said. European banks will not be able to obtain all the necessary capital from markets, and public money may be needed to fill some of the gaps, the IMF said. Banks also could cut dividend payments to shareholders and retain a larger portion of profits, it said.
