WASHINGTON, March 15 (UPI) -- The International Monetary Fund said Friday Europe has made progress on financial stabilization but stagnant growth and tight credit are still troublesome.
In its first-ever European Union-wide assessment of the soundness and stability of the financial sector, the IMF said European leaders had made considerable progress in containing the current crisis, but also called for increased efforts to resolve the current crisis and prevent another one from occurring.
"The priority is now to establish single frameworks for crisis management, deposit insurance, supervision and resolution, with a common fiscal backstop for the banking system, especially for the monetary union," said Charles Enoch, Deputy Director in the IMF's Monetary and Capital Markets Department.
Enoch directed the study released Friday.
The IMF said banks "need to build strong capital buffers" to protect them from future economic downturns.
At the same time, the report said, allowing the region's financial bailout fund, the European Stability Mechanism, to directly recapitalize banks "would help break the adverse link between government finances and banks, which has caused so much trouble in several European countries now undergoing painful adjustment."
In 2012, for example, Spain balked at accepting help from the ESM fund because that would add to its government debt -- the very problem the ESM was trying to avoid as it bailed out troubled banks.
The IMF applauded the move to have the European Central Bank provide consistent regulation of large banks with international influence -- and called for "prompt passage and implementation of capital requirements and resolution directives and regulations," in an effort to coordinate policies across Europe.
Among the unresolved issues was a development of a consistent mechanism for governments to unwind banks that fail and a region-wide deposit insurance program, the IMF said.