News / Europe

EU Must Speed Up Banking Union to Gain Trust, IMF Says

People walk outside the International Monetary Fund headquarters at the start of the annual IMF-World Bank fall meetings in Washington, Oct. 8, 2013.
People walk outside the International Monetary Fund headquarters at the start of the annual IMF-World Bank fall meetings in Washington, Oct. 8, 2013.
Reuters
The International Monetary Fund urged the European Union to quickly set up an agency that would close or salvage troubled banks across the continent as part of an effort to shed a mountain of bad debt impeding economic recovery.
 
The recommendation - one of a long list to address structural faults in the world economy - comes as European Union lawyers raised concerns about the plan to set up a so-called banking union.
 
Banks in euro-zone countries hit hardest by the debt crisis were forced to raise interest rates on risky loans to clients who had difficulty paying already, further worsening the chance they would get their money back, the IMF said.
 
“Investors' faith in euro-area bank balance sheets must be restored ... and banking union completed,” the IMF said in its  Global Financial Stability Report on Wednesday.
 
“Otherwise, the euro area risks entering a lengthy, chronic phase of low growth and balance sheet strains,” it said in the report, which comes out twice a year.
 
The EU should also conduct rigorous probes - so-called stress tests - into the health of its banking sector, the IMF said, and identify ahead of time who would fill any capital shortfalls, in order to lend the exercise more credibility.
 
The EU will take the first step towards the banking union next year, when the European Central Bank takes on supervision of banks throughout the euro zone, something that is now divided between dozens of national agencies.
 
But the IMF said a second pillar of the project - the creation of an agency to close troubled banks and a central fund to help pay for the costs of the clean-up, or Single Resolution Mechanism - was equally essential.
 
“[The current situation] places the burden of raising capital firmly back on bank shareholders and creditors or on the sovereign ... or on both, and, thus, may not provide sufficient backstop,” the IMF said in the report.
 
EU lawyers are concerned that setting up a framework that would break the link between indebted countries and their banks raises an array of political and legal complications, mainly about who would foot the bill.
 
The latter point is of particular concern to Germany, the euro zone's largest economy.
 
The IMF also said the EU should improve its insolvency laws and debt workout arrangements and help companies seek financing from sources other than bank loans - for instance through corporate debt markets.
 
In a test run, the IMF estimated that Spanish banks could face an estimated 104 billion euros ($141.40 billion) in losses on company exposure in the coming two years, though this amount is fully covered by loss provisions.
 
In Italy, the estimated gross loss could exceed the provisions by 53 billion euros, and in Portugal by 8 billion euros. In both cases, those losses could be absorbed from operating profits without eroding capital.
 
The IMF's report was a broad-ranging review of possible risks to a wide range of sectors in the global economy, with one key possible cause of disturbance being a retreat by the U.S. Federal Reserve from its easy monetary policy.
 
The shadow banking system - a loosely defined set of unregulated entities that function like banks - remained a potential source of systemic stress, the IMF said, as did the so-called repo market, which is part of it.
 
The IMF singled out mortgage real estate investment trusts (REITs) as one particular cause of concern, being prone to asset fire sales because they provide long-term debt that they fund in volatile short-term debt markets.

You May Like

Video British Fighters on Frontline of Islamic State Information War

It’s estimated that several hundred British citizens are fighting for Islamic State alongside other foreign jihadists More

Pakistan's Political Turmoil Again Shines Spotlight on Military

Thousands of protesters calling for PM Sharif to step down continue protests in front of parliament, as critics fear political impasse could spur another military coup More

Photogallery Ebola Quarantines Spark Anxiety in Liberian Capital

Food prices rise sharply as residents attempting purchases clash with security forces, leaving one person dead More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Native Bees May Help Save Cropsi
X
Deborah Block
August 22, 2014 12:23 AM
U.S. President Barack Obama has called for a federal strategy to promote the health of bees that have been declining. The honeybee has been waning due to parasites, disease and pesticides. Wild bees may be used to take over their role as crop pollinators. Scientists first need to learn a lot more about wild bees, says biologist Sam Droege, who is pioneering the first national inventory on native bees. VOA’s Deborah Block went to his research laboratory in Beltsville, Maryland, to bring you more.
Video

Video Native Bees May Help Save Crops

U.S. President Barack Obama has called for a federal strategy to promote the health of bees that have been declining. The honeybee has been waning due to parasites, disease and pesticides. Wild bees may be used to take over their role as crop pollinators. Scientists first need to learn a lot more about wild bees, says biologist Sam Droege, who is pioneering the first national inventory on native bees. VOA’s Deborah Block went to his research laboratory in Beltsville, Maryland, to bring you more.
Video

Video US Defense Officials Plan for Long-Term Strategy to Contain Islamic State

U.S. defense officials say American air strikes in Iraq have helped deter Islamic State militants for the time being, but that a broad international effort is needed to defeat the extremists permanently. Defense Secretary Chuck Hagel warned Thursday that the group formerly known as the Islamic State in Iraq and the Levant, or ISIL, is better organized, and financially and militarily stronger than any other known terrorist group. Zlatica Hoke has more.
Video

Video Drug-Resistant Malaria Spreads in Southeast Asia

On Thailand’s border with Myanmar, also known as Burma, a malaria research and treatment clinic is stepping up efforts to eliminate a drug-resistant form of the parasite - before it spreads abroad. Steve Sandford reports from Mae Sot, Thailand.
Video

Video Gaza Conflict, Hamas Popularity Challenge Abbas

The Palestinian unity government of Mahmoud Abbas has failed to convince Hamas to agree to Egyptian-negotiated terms with Israel on a Gaza cease-fire. VOA State Department Correspondent Scott Stearns reports on what the Gaza conflict means for President Abbas, with whom U.S. officials have worked for years on a two-state solution to the Israeli-Palestinian conflict.
Video

Video Nigeria's 'Nollywood' Movie Industry Rolls in High Gear

Twenty years after its birth in a video shop in Lagos, Nigeria's "Nollywood" is one of the most prolific film industries on earth. Despite low budgets and whirlwind production schedules, Nigerian films are wildly popular in Africa and industry professionals say they hope, in the future, their films will be as great in quality as they are in quantity. Heather Murdock has more for VOA from Lagos.
Video

Video UN Launches 'Biggest Aid Operation in 30 Years' in Iraq

The United Nations has launched what it describes as one of the biggest aid operations in 30 years in northern Iraq, as hundreds of thousands of refugees flee the extremist Sunni militant group calling itself the Islamic State. As Kurdish and Iraqi forces battle the Sunni insurgents, the fighting has forced more people to flee their homes. Kurdish authorities say the international community must act now to avert a humanitarian catastrophe. Henry Ridgwell reports for VOA from London.
Video

Video Cambodian American Hip Hop Artist Sings of Personal Struggles

A growing underground movement of Cambodian American hip hop artists is rapping about the struggles of living in urban America. Most, if not all of them, are refugees or children of refugees who came to the United States from Cambodia to escape the Khmer Rouge genocide of the 1970s. Through their music, the artists hope to give voice to immigrants who have been struggling quietly for years. Elizabeth Lee reports from Long Beach, California.
Video

Video African Media Tries to Educate Public About Ebola

While the Ebola epidemic continues to claim lives in West Africa, information technology specialists, together with radio and TV reporters, are battling misinformation and prejudice about the disease - using social media to educate the public about the deadly virus. VOA’s George Putic has more.

AppleAndroid