Saturday July 17, 2010IMF chief sees European banks safe in stress tests
EUROZONE-BANKS/STRAUSS KAHN IMF chief expects stress tests to be "reassuring"
* Sees risk of low growth in Europe but no double-dip
* Pessimistic about efforts to coordinate bank regulation
PARIS, Stress tests being conducted in the European Union will show that all the major European banks have sufficient capital, International Monetary Fund chief Dominique Strauss-Kahn said on Friday.
Strauss-Kahn, speaking to France 24 television, said markets were underestimating the capacity of the euro zone to weather the financial crisis, but he acknowledged that the 16 nation bloc faced the risk of a prolonged period of low growth.
With the aim of restoring confidence among investors, Europe will publish next Friday the results of stress tests on 91 banks across 20 countries on how they would cope with another downturn and losses on Greek and some other government bonds.
"I get the feeling that what will come out will be rather reassuring, and that we'll see that all the big European banks are sufficiently solid to resist any earthquake," Strauss-Kahn said in the interview due to be broadcast on Friday.
The IMF chief said it was possible some smaller banks would have to be recapitalised, but he stressed that in any case the Fund did not consider a double-dip recession in Europe likely.
"Of course, the risk exists but our central scenario is not the famous double-dip ... On the other hand, there is a real risk of weak growth (in Europe) with several consequences: low purchasing power, problems with the welfare systems, and a rise in unemployment," he said.
After the U.S. Senate gave final approval to sweeping changes to bank and capital market regulation on Thursday, Strauss-Kahn repeated criticisms that governments were failing to coordinate measures to prevent a repetition of the crisis.
"What is being done by the Americans on the one hand and the Europeans on the other is sensible, but the problem is it is not compatible, and in this way we create loopholes and get out clauses," he said.
"The coordination of financial regulation is very important, and honestly, I am not optimistic."
