The European Union and the International Monetary Fund raised concerns over the health of European banks as the continent's debt crisis worsens.
The EU's competition commissioner Tuesday warned that more than the nine banks that failed the stress tests this summer may need to be recapitalized and proposed extending crisis rules that make it easier for governments to rescue failing lenders.
Meanwhile, the IMF said in its half-yearly World Economic Outlook that banks needed to boost their capital buffers more quickly and beyond new minimum levels set to take effect in 2019.
Their concerns come as market worries grow about the effect on banks of a potential default by Greece or other struggling countries — financial stocks have dropped sharply in recent weeks.
IMF Managing Director Christine Lagarde recently called for the forced recapitalization of banks that are unable to raise capital in the market. Her suggestion sparked harsh reactions from several European policymakers who said the stress tests had shown which banks needed to do more.
But Tuesday's comments from Joaquin Almunia — who runs the department in the EU's executive commission that has to clear bank bailouts — are the first admission from a high-ranking EU official that the stress tests may not have identified all the banks that need to shore up their capital buffers.
Almunia said that because of the worsening crisis, the EU should extend looser rules on state aid for banks beyond the end of 2011, when they are set to expire, adding that he would ask the other members of the European Commission to approve this plan later this year.
Nine banks failed the July stress tests and 16 others barely passed. Those banks have to submit plans on how they want to raise their capital cushions to the EU's banking regulator by mid-October. They then have several months to try to raise the money on the market or seek aid from their governments.
The EU's competition commissioner Tuesday warned that more than the nine banks that failed the stress tests this summer may need to be recapitalized and proposed extending crisis rules that make it easier for governments to rescue failing lenders.
Their concerns come as market worries grow about the effect on banks of a potential default by Greece or other struggling countries — financial stocks have dropped sharply in recent weeks.
IMF Managing Director Christine Lagarde recently called for the forced recapitalization of banks that are unable to raise capital in the market. Her suggestion sparked harsh reactions from several European policymakers who said the stress tests had shown which banks needed to do more.
But Tuesday's comments from Joaquin Almunia — who runs the department in the EU's executive commission that has to clear bank bailouts — are the first admission from a high-ranking EU official that the stress tests may not have identified all the banks that need to shore up their capital buffers.
Almunia said that because of the worsening crisis, the EU should extend looser rules on state aid for banks beyond the end of 2011, when they are set to expire, adding that he would ask the other members of the European Commission to approve this plan later this year.
Nine banks failed the July stress tests and 16 others barely passed. Those banks have to submit plans on how they want to raise their capital cushions to the EU's banking regulator by mid-October. They then have several months to try to raise the money on the market or seek aid from their governments.
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