Banks must bolster balance sheets to stave off crisis, says IMF

International Monetary Fund (IMF) has warned global banking industry of an impending funding crunch

The warning formed part of an update to the Global Financial Stability Report and World Economic Outlook, which Dominique Strauss-Kahn, MD of IMF, is planning to showcase at the ongoing World Economic Forum in Davos.

IMF opined that pressures on balance sheet, funding, limited credit growth and increasing write downs from banks are all expected to contribute to an uncertain outlook for the sector.

IMF name-checked the UK as one country facing particular scrutiny over the state and sustainability of its public finances. It said that the extra debt raised by the government could crowd out private sector credit growth, gradually raising interest rates for private borrowers and putting a drag on the economic recovery.

IMF said: "There are still pressing challenges from the crisis. At the same time, new risks are emerging as a result of the extraordinary support provided by the policy measures that have been implemented.

"Even though some bank capital has been raised, substantial additional capital may be needed to support the recovery of credit and sustain economic growth under expected new Basel capital adequacy standards."