The International Monetary Fund on Thursday made it public through its "Global Financial Stability Report" that underscores the need for European commercial banks to augment assets to ensure the confidence and loyalty of creditors and depositors.

The current European debt crisis has already produced $410 billion or a total of 300 billion euros in terms of credit risk for a lot of banks in the region.

"Political disputes in Europe concerning methods to combat corruption and subsequent setbacks in the implementation of solutions are causing concern about the danger of government payment failures," the IMF stated.

"The lack of supplementary capital safeguards will definitely lead to problems in gaining access to funding and add more pressures on banking institutions," the IMF added.

The global funding agency has envisaged harsh consequences if policy makers are not able to restrict the debt instability that is now jeopardizing countries such as Spain, Belgium and Italy.

"Infusion of funds to facilitate the capitalization of banks may be necessary to lessen public liabilities," the IMF said today.
Despite the appeal made by IMF managing director Christine Lagarde to re-capitalize Euro banks, officials of some EU countries dismissed the agency's recommendation. European Central Bank President Jean-Claude Trichet claimed that the funding system of the ECB differs with that of the IMF.

In a related development by Bloomberg News, the IMF requested the U.S. to come up with a plausible proposal to deal with its discrepancy in the medium-term citing that the financial markets may have adopted an upbeat position of the U.S. debt-rating reduction. This may spawn an erroneous sense of confidence thereby enhancing the prospects for a sudden market reaction in the days to come.

"It is imperative for the U.S. to trim down household debt to heighten overall demand in the economy which means that moves should be made to support the housing market like mortgage adjustments or a program to change unsold foreclosed residences into rental units," the IMF suggested.

The IMF approximates that anemic credit conditions may trim down economic growth in the E.U. by a high of 3.5 percent and in the U.S. by more than 2 percent and drive these economies into further slump, said the Wall Street Journal in another report.