The International Monetary Fund (IMF) said this afternoon turmoil in credit markets could spread, posing further losses to banks and cautioned that risks to global economic growth have increased.
"Financial markets remain under considerable strain, now compounded by a more worrisome macroeconomic environment, weakly capitalized institutions and broad-based deleveraging," the IMF said in its assessment of global financial markets.
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It estimated that potential write-downs and losses to banks had reached $945 billion by March 2008.
The IMF said threats to global financial stability had risen and the potential for spillovers to emerging markets increased through funding channels and trade.
"Downside macroeconomic risks that are concentrated in the US economy have a significant impact on systemically important financial institutions that may spill over to global markets," it said.
"Our analysis indicated that a contraction in the supply of private sector credit and market borrowings could bring a significant slowdown in US output growth in the following several quarters," the IMF said in its twice-yearly Global Financial
Stability Report.
The IMF also warned that signs of a downturn are becoming evident in some European housing markets, and said if economic growth slows in Europe, as forecast by the IMF, repossessions and write-offs will rise.
It noted that some analysts foresee a near doubling of home repossessions in Britain.