Christine Lagarde Just Doubled Down On Warning That Euro Banks Need To Raise Capital

Christine Lagarde

New IMF Chief Christine Lagarde pissed off a lot of people recently at Jackson Hole when she said European banks urgently needed to raise capital.

She repeats this claim in a speech today in London. This time notably she admits that the capital may be needed to settle the markets more than it is needed objectively:

As this process unfolds, we should see a decline in sovereign risk—which should go a long way in removing some of the uncertainty weighing on European banks. As I have said before, this will take time. In view of the heightened risks and uncertainties—and the need to convince markets—some banks need additional capital. We must not underestimate the risks of a further spread of economic weakness, or even a debilitating liquidity crisis. That is why action is needed so urgently so that banks can return to the business of financing economic activity.

Lagarde also encourages central banks to remain accommodative, saying that inflation risk has receded:

Monetary policy also has a role to play in the advanced economies. Broadly speaking, it should remain highly accommodative, as the risk of recession outweighs the risk of inflation. This is particularly true since inflation expectations are well anchored in most economies, and commodity price pressures are waning. So policymakers should stand ready, as needed, to take more action to support the recovery—including through unconventional measures.

Also she liked Obama’s speech:

We welcome the proposals announced by President Obama last night, which focus on supporting growth and job creation in the short term. As the President also emphasised, it remains critical for the United States to clarify its medium term plan to put public debt on a more sustainable path, and we look forward to the proposed consolidation plan to be announced in the coming days.

Here’s the full thing >