IMF fears $3.8 trillion forced asset sale by eurozone banks

An escalation of the eurozone debt crisis could force European banks to sell assets worth up to $3.8 trillion (£2.4 trillion) by the end of 2013 and trigger a fresh credit crunch, the International Monetary Fund has warned.

The IMF's spring Global Financial Stability Report said that should markets lose faith in the effectiveness of eurozone policies, rising funding costs and increased stresses within the banking system could force banks to rapidly reduce their balance sheets to raise capital buffers.

Under the scenario, the supply of eurozone credit would fall by 4.4pc and growth in the region would be cut by 1.4pc.

The sell-off among 58 of the biggest banks in the European Union included in the IMF's analysis would be equivalent to 10pc of total assets, and the balance sheet adjustment would also involve a significant reduction in bank lending, it said.

The UK banks involved in the study were state-backed Royal Bank of Scotland and Lloyds Banking Group, as well as HSBC and Barclays.

A second global credit crunch would make it more difficult still for UK households and businesses to borrow from banks. Read More