A much-needed pruning of banks across the world could stifle lending and dampen economic recovery, the International Monetary Fund said on Wednesday.

To boost profits, banks need to raise prices in certain business lines, pull out of others altogether, and put their money where it yielded more, the Fund said.

"The transition to new business models could... potentially (create) a headwind against the recovery," the IMF said in its biannual Global Financial Stability Report.

After the devastating 2007-09 financial crisis, regulators across the world have forced banks to raise more shareholder equity as a buffer against losses, and to pull out of the riskiest investments and loans.

But the industry had been slow in finding new ways to make money, and the return on equity of banks representing 80 percent of the assets of the largest institutions now was lower than what was required by shareholders, the IMF estimated.