The world's banks face a $3.6 trillion "wall of maturing debt" in the next two years and must compete with debt-laden governments to secure financing, the IMF warned on Wednesday.
Many European banks need bigger capital cushions to restore market confidence and assure they can borrow, and some weak players will need to be closed, the International Monetary Fund said in its Global Financial Stability Report.
The debt rollover requirements are most acute for Irish and German banks, with as much as half of their outstanding debt coming due over the next two years, the fund said.
"These bank funding needs coincide with higher sovereign refinancing requirements, heightening competition for scarce funding resources," the IMF said.
Overall, the IMF said global financial stability has improved over the past six months.
The most pressing challenges in the coming months will be funding of banks and sovereigns, particularly in vulnerable euro area countries, it said.
The IMF and European Union bailed out Greece and Ireland, and are in talks with Portugal on a lending program as sovereign borrowing costs surge.