IMF: European Banks May Be Forced To Sell $3.8 Trillion In Assets

The International Monetary Fund announced Wednesday that European banks could be forced to shrink their balance sheets by as much as $3.8 trillion through 2013 with a quarter of the deleveraging likely to come from cuts in lending and the remainder from sales of securities and noncore assets.

In its Global Financial Stability Report, the IMF warned that unless policymakers step up their response, European banks' massive deleveraging could slow the region's growth. The IMF projected that the 17 countries that use the euro currency will still likely see their economy shrink 0.3 percent this year, and expand by only 0.9 percent in 2013.

European banks have been under pressure to reduce leverage since 2008, and have accomplished this by selling assets, and raising capital while limiting their cuts in lending to companies and households. The fund did praise European leaders for bulking up its bailout fund and taking other important steps to address the crisis.