The International Monetary Fund has urged the euro zone to use its EFSF stabilisation fund to beef up the capital cushions of its weakest banks, citing steep losses in the sector from the sovereign debt crisis.
In its twice-yearly Global Financial Stability Report, the IMF estimated that the euro zone debt crisis has directly cost banks in the EU €200 billion since the end of 2009, when Greece's public debt crisis erupted.
Read Economics Correspondent Sean Whelan's analysis
"This estimate does not measure the capital needs of banks, which would require a full assessment of bank balance sheets and income positions. Rather, it seeks to approximate the increase in sovereign credit risk experienced by banks over the past two years," the global lender said.
Of the €200 billion total, €60 billion comes from sovereign debt in Greece, €20 billion from Ireland and Portugal, and €120 billion from Belgium, Spain and Italy.
The IMF estimated €100 billion in additional costs linked to the banks of those six countries.
Given the magnitude of these risks, and considering that "markets are likely to remain volatile," the IMF said, "some European banks urgently need to bolster their capital levels".
It said, however, that this may not be possible in current market conditions, so national governments and ultimately the European Financial Stability Facility should be used to provide capital to banks as needed.
The IMF devoted a large section in the report to highly indebted Italy, the third-largest economy in the euro area. "Given the systemic size of the bond markets in Italy and the sovereign funding needs there, these risks have become key drivers of market conditions, increasing the potential for spillovers across different asset markets," the IMF said.
Meanwhile, the European Central Bank has said it lent $500m (€366m) to one euro zone bank this week amid concerns banks are having difficulty in obtaining dollar funding through the markets.
The ECB did not name the bank concerned, but it is the second time in a month that banks in the region have taken advantage of the seven-day facility, which the central bank operates with the US Federal Reserve.
Separately, the ECB, the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank promised last week to lend dollars to commercial banks for longer terms as the euro zone debt crisis has begun to hit liquidity in the sector.
Some European banks have run into serious problems in borrowing dollars recently because the US funds that normally lend to them have become reluctant to do so for fear of contagion from the euro zone debt crisis.
