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

Republican Majority in Congress Off to Rough Start

Standoff over Homeland Security funding exposes philosophical, tactical problems within party More

Pakistan Blocks Baloch Activist from US Trip

Human Rights Commission of Pakistan slams Islamabad officials for stopping people from leaving country to attend human rights conference More

Video Muslims Long Thrived in North Carolina Before Students Killed

Idyll shattered February 10, when three Muslim university students living in Chapel Hill were gunned down by a neighbor More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Muslims Long Thrived in N Carolina Before Slaying of 3 Studentsi
X
Jerome Socolovsky
March 05, 2015 9:04 PM
The killings of three Muslim students in North Carolina early last month came as Muslims across the United States have felt under siege, partly as a result of terrorist attacks being committed internationally in the name of their faith. But Muslims have long thrived in university cities in this part of the American South. VOA's Jerome Socolovsky reports.
Video

Video Muslims Long Thrived in N Carolina Before Slaying of 3 Students

The killings of three Muslim students in North Carolina early last month came as Muslims across the United States have felt under siege, partly as a result of terrorist attacks being committed internationally in the name of their faith. But Muslims have long thrived in university cities in this part of the American South. VOA's Jerome Socolovsky reports.
Video

Video Fuel Shortages in Nigeria Threaten Election Campaigns

Nigeria is suffering a gas shortage as the falling oil price has affected the country’s ability to import and distribute refined fuels. Coming just weeks before scheduled March 28 elections, the shortage could have a big impact on the campaign, as Henry Ridgwell reports for VOA.
Video

Video Report: Human Rights in Annexed Crimea Deteriorating

A new report by Freedom House and the Atlantic Council of the United States says the human rights situation in Crimea has deteriorated since the peninsula was annexed by Russia in March of last year. The report says the new authorities in Crimea are discriminating against minorities, suppressing freedom of expression, and forcing residents to assume Russian citizenship or leave. Zlatica Hoke has more.
Video

Video 50 Years Later African-Americans See New Voting Rights Battles Ahead

Thousands of people will gather to mark the 50th anniversary of a historic civil rights march on March 7th in Selma, Alabama. In 1965, dozens of people were seriously injured during the event known as “Bloody Sunday,” after police attacked African-American demonstrators demanding voting rights. VOA’s Chris Simkins introduces us to some civil rights pioneers who are still fighting for voting rights in Alabama more than 50 years later.
Video

Video Craft Brewers Taking Hold in US Beer Market

Since the 1950’s, the U.S. beer industry has been dominated by a handful of huge breweries. But in recent years, the rapid rise of small craft breweries has changed the American market and, arguably, the way people drink beer. VOA’s Jeff Custer reports.
Video

Video Video Claims to Show Shia Forces in Iraq Executing Sunni Boy

A graphic mobile phone video is spreading on the Internet, claiming to show Iraqi forces or Shia militia executing a handcuffed Sunni boy. Experts have yet to verify the video, but already Islamic State followers are publicizing it across social media, playing on deep-rooted sectarian fears. VOA’s Jeff Seldin reports.
Video

Video Ukrainian Authorities Struggle to Secure a Divided Mariupol

Since last month's cease-fire went into effect, shelling around the port city of Mariupol has decreased, but it is thought pro-Russian separatists remain poised to attack. For the city’s authorities, a major challenge is gaining the trust of residents, while at the same time rooting out informants who are passing sensitive information to the rebels. Patrick Wells reports for VOA.
Video

Video Volunteer Gauge-Watchers Help Fine-Tune Weather Science

An observation system called CoCoRaHS is working to improve weather science, thanks to thousands of volunteers across the country who measure precipitation in their own backyards, then share their data through the Internet. VOA's Shelley Schlender reports.
Video

Video NASA Spacecraft Approaches a Dwarf Planet

NASA’s Dawn spacecraft will make history on Friday, March 6, when it becomes the first man-made object to orbit a dwarf planet named Ceres. It is located in the asteroid belt between Mars and Jupiter, almost 500 million kilometers from Earth. Among other objectives, Dawn will try to examine two mysterious bright white spots detected on the planet’s surface. VOA’s George Putic has more.
Video

Video Young Muslims Radicalized Online

Young Muslims are being radicalized ‘in their bedrooms’ through direct contact with Islamic State or ISIL fighters via the Internet, according to terror experts. There are growing concerns that authorities and Internet providers are not doing enough to counter online extremism - which analysts say is spread by a prolific network of online supporters around the world. Henry Ridgwell reports from London.
Video

Video Positive Messaging Transforms Ethiopia's Image

Ethiopia was once known for famine and droughts. Now, headlines more often point to its fast-growing economy and its emergence as a regional peacemaker. How has Addis Ababa changed the narrative? VOA's Marthe van der Wolf reports.
Video

Video Answers Elude Families of MH370 Passengers

For the families on board Malaysia Airlines flight MH370, an airline official’s statement nearly one year ago that the plane had lost contact with air traffic control at 2:40 AM is the only thing that remains confirmed. William Ide reports.

All About America

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More