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Risks to global financial stability have "increased": IMF

(Xinhua)

10:16, January 25, 2012

WASHINGTON, Jan.24, (Xinhua) -- The international Monetary Fund (IMF) said Tuesday the risks to global financial stability had "increased" due to intensification of the euro area debt crisis.

"Risks to stability have increased, despite various policy steps to contain the euro area debt crisis and banking problems," said the IMF in its semi-annual Global Financial Stability Report, a flagship product of the Washington-based international institution.

"European policymakers have taken significant steps to contain the crisis, but stability risks remain elevated as sovereign financing will be challenging and backstops are not yet adequate," the IMF said, calling for further policy actions to prevent highly destabilizing outcomes.

The report noted the sharp rise in sovereign bond yields and said the trend had spilled from the periphery into the core of the eurozone. The spillover into the eurozone banking system had resulted in deleveraging of banks, which would "ignite an adverse feedback loop to euro area economies," the fund said.

The global lending organization said both emerging and advanced countries were susceptible to a range of shocks from the eurozone. Potential spillovers could include direct exposures to euro area banks, or deteriorating macroeconomic prospects.

"Restoring sovereign access to funding at sustainable yields is a key challenge," it said, suggesting additional policy actions for policymakers included increasing the size and flexibility of the bail-out funds in Europe "at the earliest possible opportunity" to make the firewall against high funding costs for sovereigns and banks "sufficiently large and convincingly built."

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