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Lagarde calls for urgent recapitalisation of eurozone banks

International Monetary Fund (IMF) managing director, Christine Lagarde, is calling for an urgent recapitalisation of Europe’s banks.

At a financial conference in Jackson Hole in the US yesterday, Madame Lagarde spoke of the “cloud of uncertainty” hanging over banks and sovereigns across Europe, saying: “Financial exposures across the continent are transmitting weakness and spreading fear from market to market, country to country, periphery to core.”

Ms Lagarde wants eurozone banks recapitalised to be strong enough to withstand both the risks of sovereigns and weak growth.

According to the IMF head: “This is key to cutting the chains of contagion. If it is not addressed, we could easily see the further spread of economic weakness to core countries, or even a debilitating liquidity crisis.”

She therefore recommends “mandatory substantial recapitalisation—seeking private resources first, but using public funds if necessary”.

One option would be to mobilise the European Financial Stability Facility (EFSF) or other European-wide funding to recapitalise banks directly, Madame Lagarde said.

The EFSF is a Luxembourg-registered company owned by Euro Area Member States (EAMS); it is able to issue bonds guaranteed by EAMS for up to €440 billion for on-lending to states in difficulty.

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