IMF: European regulators are making the downturn worse

In its regional economic outlook for Europe, released today, the IMF said that widespread use of financial assets as collateral had amplified the effects of the economic cycle.

"The rapid growth of asset prices, particularly stocks and real estate prices, during booms raises the value of collateral, thus stimulating credit growth... However, this behaviour also increases the vulnerability of the financial system during the subsequent downswing, when it becomes clear that the loans did not have adequate backing," the Fund said, adding that "risk assessment and traditional regulatory tools" could also act to exaggerate the normal business cycle.

It added that it was up to national regulators to counteract this, by compelling banks to increase their reserves during booms and draw on them during downturns - as is already required in Spain.

The economic slowdown in Europe, including a short recession in the more advanced economies, would keep inflation below targets, but governments would have to concentrate on ensuring financial stability, the Fund recommended.

See also: Q & A: CESR chairman Eddy Wymeersch
IMF cuts growth forecasts as outlook turns gloomy
UK to lead global efforts to restore stability
IMF estimates crisis losses at $1.4 trillion

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact or view our subscription options here:

You are currently unable to copy this content. Please contact to find out more.

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here