While Europe is in better shape than it was a year ago and has made progress in combating its crisis, some of its banks still need to shore up their capital levels, Flaherty said. Countries in the region also need to move ahead with “structural reforms,” he said.
“There are some black boxes there they need to open,” Flaherty said in an interview with Bloomberg Television in Tokyo, after a meeting of Group of Seven finance ministers. “We know there is some weakness in some banks but we don’t have much more information than that.”
European lenders, whose balance sheets swelled during the credit boom to about three times the region’s gross domestic product, are being urged by regulators to decrease their riskiness by shrinking assets and boosting capital. The International Monetary Fund said this week that European banks may need to cut as much as $4.5 trillion in assets through 2013 if policy makers fall short of pledges to stem the fiscal crisis.
Flaherty, who is in Tokyo to attend the annual meetings of the IMF and the World Bank, said there’s “cautious optimism” about Europe at this year’s event.
“It’s in a better place now than it was a year ago,” he said. “Some progress has been made, there’s more to be done.”
To contact the editor responsible for this story: Craig Stirling at firstname.lastname@example.org