The International Monetary Fund (IMF) has warned credit crunch losses could reach $4 trillion (£2.75tn), damaging the financial system for years to come.
It says that even if urgent action is taken to clean up the banking system, the process will be “slow and painful”, delaying economic recovery.
Banks may need $1.7 trillion in additional capital, the IMF forecasts.
And it warns that the cost of the bail-out will severely hit UK government finances with its added debt burden.
But the IMF corrected its estimate of the cost to the UK of the bail-out from 13.4% of GDP, or £200bn, to 9.4% of GDP, or £130bn.
The Treasury confirmed that the chancellor will be making a “prudent” estimate of the cost of the bail-out in the Budget, but many commentators believe this will be around £60bn, or half the IMF estimate.
The US and Ireland will face even higher government bills for the bail-out, according to IMF estimates.
Rising bill
One year ago, the IMF estimated that total losses from the credit crunch would be $1tn, which has been exceeded, showing how rapidly the financial meltdown has escalated.
The IMF now says that banks are likely to lose $2.7tn, but other financial institutions such as insurance companies and pension funds are also coming under strain.
And it says that emerging market economies, which will need $1.8tn in refinancing next year, will be hard-hit by the collapse of cross-border lending. It predicts that there will be no net private lending at all to developing countries this year.
Read the full article on the BBC.
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