IMF warns Australia's big banks

THE International Monetary Fund has called on Australia's biggest banks to bolster their levels of capital even further, warning the sector may not be able to withstand the dual shock of a residential property downturn and losses on corporate lending.

The finding follows a stress test of Australia's banking system run by the IMF late last year which modelled the impact of an Irish-style economic crunch taking place locally.

The findings come as Australian banks are already pushing ahead to meet tougher global banking rules known as Basel III.

While the IMF findings have no direct impact on the running of Australia's banking sector, the conclusions will be taken seriously by regulators and politicians. However, they are expected to be strongly resisted by bank executives who have already been critical of Basel III.

They argued by putting aside more funds to protect the balance sheet would increase the cost and reduce the amount of funds available for lending.

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