(Reuters) – Sovereign debt risk in Europe and continued real estate woes in the United States have dealt a setback to global financial stability in the past six months, the International Monetary Fund said on Tuesday.
The IMF said risks to the financial sector could be reduced if legacy problem assets were cleaned up, if governments improved their fiscal positions and if more clarity were provided on global financial regulation.
"The global financial system is still in a period of significant uncertainty and remains the Achilles' heel of the economic recovery," the IMF said in its semi-annual Global Financial Stability Report.
"The recent turmoil in sovereign debt markets in Europe highlighted increased vulnerabilities of bank and sovereign balance sheets arising from the crisis," the fund said.
Jose Vinals, director of the IMF's Monetary and Capital Markets Department, said recent volatility in currency markets was not a major concern for global financial stability as long as the changes "move in the direction of medium-term fundamentals.
"The best way of protecting against any unintended consequences of foreign exchange rate changes on financial balance sheets is to have sound buffers to accommodate whatever changes happen," he added.
The IMF said it trimmed its estimate of total global bank write-downs related to the financial crisis between 2007 and 2010 to $2.2 trillion from its April estimate of $2.3 trillion, largely on a drop in securities losses. Banks have recognized more than three-quarters of these write-offs, leaving about $550 billion still to be taken.
However, the fund said banks had made less progress in dealing with near-term funding pressures -- nearly $4 trillion of bank debt needs to be refinanced in the next 24 months. (more)
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