The group has issued a dire warning on the costs of the credit crunch - and also called for further government intervention in the financial system.
The group has issued a dire warning on the costs of the credit crunch - and also called for further government intervention in the financial system.
Banks and other institutions could face over $4 trillion of asset writedowns due to the financial crisis, shock figures from the International Monetary Fund (IMF) have revealed.
Economists at the fund showed that increasing numbers of "toxic assets" held by the firms would be written off due to continuing fallout from the credit crunch. Just $1 trillion of these losses are estimated to have occurred so far.
The devalued assets include financial securities linked to mortgage markets. Banks bought in to these in the boomtimes due to the attractive returns they offered - but were left unable to sell them due to falling house prices and the onset of the credit crunch in 2007.
According to the IMF, further government action now needs to be taken in order to clear the assets from banks' balance sheets, strengthening their financial position and promoting a general recovery from the current economic downturn. However, further "bailouts" of banks are likely to prove unpopular with electorates around the world - with the firms' own actions widely blamed for the credit crisis and recession.
"Overall, further decisive and effective policy actions will be needed to stabilise the international financial system," the report stated. "The global response to date has been rapid, but often piecemeal and insufficient to bolster public confidence. In particular, the global banking system needs to be cleansed of its impaired assets."
The IMF found that $2.7 trillion of the writeoffs will be from securities originating from the US, with Europe and Japan having produced the other $1.3 trillion. Banks are expected to bear around two-thirds of the eventual costs.
