by Ian Talley
Wall Street Journal
October 5, 2011
The International Monetary Fund warned the U.S. Federal Reserve Wednesday to be prepared for potential credit crunches from Europe’s debt crisis.
“Authorities should be vigilant to bouts of illiquidity arising from financial strains in Europe,” the fund said in a regional economic outlook. It said the Fed’s ongoing efforts to keep interest rates low will support stability in financial markets.
Still, the IMF fears that many European banks don’t have enough capital to protect themselves against the deteriorating debt crisis. If true, credit could potentially dry up, causing another global financial meltdown. The head of the IMF last month called for Europe to force its banks most prone to the sovereign-debt crisis to recapitalize.
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