Warning of more bank rescues

More European banks may have to be rescued, the Organisation for Economic Co-operation and Development, the "club" of the world's most advanced economies, warned yesterday.

Against a backdrop of "muted" recovery, the OECD says that while substantial support to Europe's banks should be withdrawn gradually, "further recapitalisation of banks could be necessary [and] all countries should have a full set of effective, credible and harmonised bank resolution tools".

The small Spanish banks, the cajas, are most at risk from a further slump in property values.

More than three years after cross-border failures such as Fortis made headlines, the OECD says "weaknesses in cross-border supervision remain a risk".

To avoid a repeat of this year's sovereign debt crises, the OECD argued: "Sanctions should range from intrusive surveillance and warnings to financial sanctions."

The OECD intervention comes as the Bank for International Settlements (representing the world's central banks) and the European Investment Bank implicitly blame Germany's Chancellor Angela Merkel and some senior French figures for the recent run on Ireland.