“Worse, as far as the men seated in the room were concerned, Ms. Lagarde was partly responsible for the collapse of confidence bedeviling the financial markets. She had dared to state what few of them would admit publicly: European banks were not as sheltered from this storm as they might seem.
Ms. Lagarde has backed off in the past. But this time, she did not climb down from her principal point: That many banks still need a bigger cushion against potential losses in the event of a Greek default. Last week, the monetary fund warned that Europe’s banks had as much as 300 billion euros at risk on various European government bonds but stopped short of saying they needed to raise that much in new capital.
Whatever the figure, it is almost certainly far more than the 2.5 billion euros that European regulators said the banks might need last spring. For some, the fact that so many European leaders are biting back proves that Ms. Lagarde has touched a nerve.”