The IMF (International Monetary Fund) says the U.S. financial system is "slowly recovering," but remains vulnerable to crisis, in part because Congress and the administration have failed to streamline a regulatory system marked by turf battles and overlapping responsibilities. The fund said additional capital of $76.3bn may be required. A separate report says additional stimulus measures may be needed to boost the economy.

Under one scenario, small and regional banks as well as subsidiaries of foreign banks would need $40.5bn in additional capital to meet a benchmark capital ratio of 6% Tier 1 common equity from 2010 to 2014. Under the adverse scenario, those needs rise to $76.3bn, according to the report. "We asked many times why bolder action could not be undertaken," said the IMF's Christopher Towe, who headed a review of the US financial sector.

Warning that the "economic recovery has been slow by historical standards" and that "the outlook remains uncertain," the IMF's directors said more stimulus spending might be needed. "Further decisive action is needed to achieve stable medium-term growth and limit risks of adverse international spillovers."

The US economy risks "Japanese-style" stagnation, a Federal Reserve official warned Thursday.

Warning about "the peril" of deflation, James Bullard -- a member of the Fed's interest rate-setting panel -- said the United States was closer to a Japanese-style lost decade "than at any time in recent history."

"Escape from such an outcome is problematic," he wrote in a Fed journal. "Hope is not a strategy."

Given any risk of an external shock that would spark falling prices -- squeezing firms and forcing ever-slower growth -- Bullard said the Fed should consider restarting crisis measures.

Setting public debt on a sustainable path is a key macroeconomic challenge. IMF directors welcomed the authorities’ commitment to fiscal stabilization, but noted that a larger than budgeted adjustment would be required to stabilize debt-to-GDP under staff’s economic assumptions, requiring revenue and expenditure measures. They urged the authorities to accompany the 2011 adjustment with a strong commitment to medium-term stabilization, perhaps including further entitlement reform. Some Directors welcomed the creation of the Fiscal Commission and the Independent Payment Advisory Board as useful steps. A number of Directors encouraged the authorities to set debt-to-GDP on a declining path in the longer term.

Directors welcomed the health care reform, including enhanced coverage and measures to control costs, the key long-term fiscal risk. However, with payoffs highly uncertain, close monitoring of costs and remedial actions, if needed, will be essential. Further action is also necessary on Social Security, where needed measures are well known and payoff more certain.

IMF staff report

Financial Stability Assessment

Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, talks to CNBC:

UK housing market strained: prices will soften soon: Davy chief economist, Rossa White, comments - - "The UK housing market recovery has definitively stalled. Mortgage approvals have trended lower since the end of last year. Their current level is less than half of what would be approved in an 'old normal' market. When mortgage approvals stall, prices usually soften with a short lag. But prices overshot during the recovery, probably thanks to the emergency policy response. From that artificial level, they are set to fall as we head into 2011.

UK mortgage approvals nudged down to 47,643 in June, the lowest since January. They rallied from the low of 26,617 in November 2008 to 58,995 in November 2009. Yet that compares with the 1987-2007 average of 98,299, through a full housing market cycle. From the data, it is clear that the market is still under strain. On the supply side, mortgage credit standards have eased somewhat, but they are far tighter than in the 2003-2007 period. The amount of credit available is smaller too as the mortgage industry has slimmed down. Meanwhile, demand remains weak. The labour market has stabilised, but disposable incomes will be pressured by government tax hikes and expenditure cuts. Demand was pulled forward into 2003-2007 and the payback continues. Finally, it is possible that households realise that rental yields at 4% imply that the market is still far too pricy.

The historic relationship between mortgage approvals and house prices (as evidenced by the RICS index for example) is tight. But that relationship disentangled during the 2009 bounce. Mortgage approvals rose from panic-induced levels, but prices shot higher. In other words, prices rose by much more than the increase in demand seemed to justify. It is quite likely that the Bank of England's enormous quantitative easing and the associated depreciation of sterling led to a surge of liquidity bound for the housing market. That river has begun to dry up. Certainly, on the basis of the charts, not only will house prices soon start falling again (the RICS index is already on the slide but has not turned negative yet) but they have a lot of catch-up to do to tally with the new level of mortgage approvals."

Discussing whether a Japanese style deflation is happening right here in America, with David Goldman, First Things Magazine and Joseph LaVorgna, Deutsche Bank:

Economic View 1: Pace of decline in Irish House Prices slows in Q2; Goodbody economist, Juliet Tennent, comments  - - "According to the latest permanent tsb/ESRI index, house prices fell by 1.7% in Q2 10, bringing the average house price back to 2002 levels. Prices have now fallen 35% from their peak at the end of 2006. Encouragingly, the qoq decline also represents the smallest quarterly decline since Q2 2008. However, this slowing in the decline in house prices contrasts with the Q2 report from Daft.ie, released earlier this month, which showed that the pace of decline in asking prices picked up again in Q2 10 (-4.2% qoq) after slowing to -3.4% qoq in Q1 10 from -5.5% in Q4 09. A number of factors are required to before we see an improvement in the backdrop to the Irish housing market, including a more favourable labour market outlook, an improvement in credit conditions and an increase in confidence levels. While the slowing in the pace of price declines raises the prospect that an end to over three years in price falls may be in sight, there is clearly some way to go."

Economic View 2: More to be done to improve to Ireland’s international competitiveness: Juliet Tennant added - - "A new report from the National Competitiveness Council (NCC) shows that while Ireland’s relative cost competitiveness, as measured by the EU’s real harmonised competitiveness indicator (HCI), had improved between January 2008 and June 2010, it is still 14% above where it was in January 2000. This suggests that further progress is essential. Between January 2000 and January 2008, Ireland’s HCI rose by 28% as the cost of labour, property, utilities and business services all outpaced those of our Euro area partners.

Since early 2008 some of these costs have been reigned in, particularly unit labour costs and industrial electricity costs, but in sectors that are not exposed to international competition, like broadband and legal fees, costs remain relatively high. Further improving Ireland’s cost competitiveness is crucial to both attracting inward investment and to our export sector which is expected to drive growth over the coming quarters. In addition, as the recession has driven much of the improvement longer term structural changes are needed to protect against future loss of competitiveness."

NBC's Ann Thompson has the details on where those millions of spilt barrels of oil went:

Boundary Capital: The investment company Boundary Capital, which has a 45% stake in the embattled Arnotts store group, which is considered worthless, has announced plans delist from markets in Dublin and London.

Boundary owes Anglo Irish Bank more than €39m says it is no longer in a position to meet the costs associated with being quoted on Dublin's ESM and London's AIM markets.

The company is proposing a change of name, after agreeing with former chairman Niall McFadden that he would retain the Boundary name. The new name being proposed is Fleming Capital.

Boundary is down 50% to 1 cent in Dublin.

British Airways: BA today reported a pre-tax loss of £164m for the three months to the end of June, a period which included disruption from Icelandic ash and industrial action, which cost it £250m.

The pre-tax loss compared with £148m in the same period last year - due to currency movements and finance costs - but the airline's trading loss narrowed from £94m to £72m. Chief executive Willie Walsh said BA's financial performance improved during the quarter, helped by cost cuts. He said trends in passenger and cargo traffic were positive.

Total revenue was down 2.3% from a year earlier to £1.94 billion, but average revenue per passenger rose by 13.5%.

BA said it was continuing to target a break-even result at pre-tax profit level for the full year

Airlines; BA Q1 2001 results look better at the pretax level: Goodbody's Eamonn Hughes comments  - -"British Airways (BA) reported a Q1 IMS this morning. It talked about trends in passenger and cargo continuing to be positive with yields up and costs down. Total revenue was down 2.3% in the period, with passenger revenue down 3.4%, after the 11.2% capacity reduction. This implied that yields were up 13.5%. Revenue at £1.937bn came in slightly ahead of the £1.888bn consensus. The airline has faced many disruptions in the quarter – strikes/volcano etc – so it’s interesting to see it is saying revenues would have been up 11% only for those. Further, down the P&L, the news is a little better, with an Operating Loss of £72m vs expectations of -£160m. At the PTP level, the airline reported a £164m loss vs consensus of -£196m. While the figures were modestly better, in terms of outlook, the company indicated that it is sticking with its target to break even at the profit before tax level for the full year. So here is another airline with reasonable revenue trends."

US Markets

On Thursday, the Dow fell 31 points or 0.29% to 10,467.

The S&P 500 slid 0.42% and the Nasdaq slipped 0.67%.

European Benchmarks

Irish Share Prices

Irish Stock Market Capitalisation by Company

Key Index Performance Statistics

Euribor Rates

AIB Daily Report

Bank of Ireland Daily Report

Irish Financials: Fitch highlights funding challenge for Irish banks, but manageable; Goodbody';s Eamonn Hughes comments  - - "Fitch yesterday produced its semi annual tome on the Irish financials, however, here are a few highlights. In probably no surprise, funding is identified as the largest challenge and there is uncertainty how the banks will refinance when the blanket guarantee scheme ends, but overall, Fitch considers the funding situation “manageable”, helped by the extension of the less comprehensive guarantee scheme until the year end and access to ECB funding. Fitch says the banks are likely to continue to need a state guaranteed funding scheme in the future and it anticipates that the European Commission will approve the renewal in December of the Eligible Liabilities Guarantee Scheme.

Elsewhere, Fitch highlights weak profitability this year particularly due to NAMA transfers and also highlights that profits will be impacted by restructuring charges. On the latter point, the revenue decline at the banks is making it inevitable that the cost lines will have to be tackled in a comprehensive fashion across the system. For 2011, Fitch is forecasting a significantly better yoy performance, but still muted. Presumably this reflects substantially lower credit losses post the NAMA transfers, but expected continued pre-provision profit pressures at the banks. On the non-NAMA loan book, Fitch expects the rate of emergence of new impaired loans to slow down. The 3 quoted banks – AIB, BOI and IPM – report H1 results in the coming weeks, where the main focus is likely to revolve around the margin/funding outlook."