"Since the start of the year the capitalization of banks in advanced economies fell by nearly $430 billion, increasing the challenges in addressing banking system vulnerabilities, especially for weak European banks. This is what emerges from the Global Financial Stability Report (Gfsr), the report drawn up by International Monetary Fund as part of the autumn work underway in Washington.
Furthermore, the simulations show that “a one-off 20% drop in bank stocks” leads to a credit crunch equal to 4% in the “three years following the shock”.
As for Italy, according to the IMF the efforts of the Renzi government to facilitate credit improvement and the purchase of non-performing loans”may not be enough to reduce them by an amount or as fast as needed to strengthen the banking system.”
But even at the Eurozone level, the Fund argues that a "more complete solution to the problems of European banks can no longer be postponed". The report points out the need for “urgent and comprehensive” action to address the high level of NPLs and brakes on profitability. On this last point, the Fund says that "the excess capacity of the European banking system must be addressed constantly over time".
On the cost-cutting side, the Fund calculates that the closure of branches "Could reduce banks' aggregate operating expenses ($454 billion) by approximately $18 billion, assuming branch costs equal 25% of total operating expenses."
