Brussels/Frankfurt: Europe gave a cool reception to a demand from the International Monetary Fund’s (IMF) new head Christine Lagarde to force its banks to bulk up their capital, saying the continent had done enough already.

The European Commission said there was no need to recapitalize the banks over and above what had been agreed after an annual “stress test" check of their ability to withstand economic and financial market headwinds.

“I don’t think so. This discussion has already taken place between the EU and the IMF, and the IMF is well aware of the results and the follow-up decided after the stress-tests," EC spokesman Amadeu Altafaj said.

Lagarde, speaking at an annual meeting of central bankers in Jackson Hole, Wyoming, on Saturday urged politicians to “act now" or risk seeing the fragile recovery derailed.

“Banks need urgent recapitalization," Lagarde said. “The most efficient solution would be mandatory substantial recapitalization -- seeking private resources first, but using public funds if necessary."

Earlier this month, large French and Italian banks suffered steep share price declines on speculation about their financial strength, prompting France, Italy, Spain and Belgium to impose short-selling bans.

Pressure on European banks to raise more capital had increased in July after European stress tests found eight banks failed to meet capital requirements, revealing a total capital shortfall of €2.5 billion ($3.5 billion).

Fresh capital

However, Lagarde’s words come as stocks in Europe bounced back, tracking a late rally on Wall Street on Friday, after signs that the US Federal Reserve would continue to help growth. European bank stocks were up 1.2%.

Greek banks stocks gained most, many up by 20%, also boosted by a pending combination of Eurobank and Alpha Bank, restoring hopes that Greek banks will be able to sort out their own problems without government help.

“(Lagarde’s) comments won’t help to boost confidence in the international financial system," said Gerhard Hofmann, board member of the association of German cooperative banks.

“If any European bank needs fresh capital, it would be better to stabilize the institute properly than to discuss it publicly in such a tense market situation," he said.

A source at Spain’s economy ministry echoed those comments.

“The government has already put in place from the start of this year a recapitalization plan for its financial institutions, with very high requirements," the source said.

Some bank analysts also expressed surprise about the timing of Lagarde’s comments, even though several agreed with her assessment that the fragile European banking system needs better safety buffers to withstand the risks of weak growth.

“Lagarde was saying out loud what is being widely recognized by the actions of the market," Angela Knight, head of the British Bankers Association, told Reuters.