The International Monetary Fund said European banks may need tosell as much as $4.5 trillion in assets through 2013 if policymakers fall short of pledges to stem the fiscal crisis, up 18percent from its April estimate.

Failure to implement fiscal tightening or set up a singlesupervisory system in the timing agreed could force 58 EuropeanUnion banks from UniCredit SpA to Deutsche Bank AG to shrinkassets, the IMF wrote in its Global Financial Stability Reportreleased today. That would hurt credit and crimp growth by 4percentage points next year in Greece, Cyprus, Ireland, Italy,Portugal and Spain, Europe's periphery.

“There is definitely a need for deleveraging in Europe,” saidMichael Seufert, an analyst at Norddeutsche Landesbank in Hanover,Germany, with a “negative” rating on the European banking sector.“The danger is that this produced a downward spiral as theregulation gets stricter and stricter and the global economy cools,potentially meaning more writedowns for banks. States in theperiphery are hit hardest.”