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IMF says credit crunch will cost nearly $1 trillion

The International Monetary Fund, in its Global Financial Stability Report, has said that worldwide losses from the recent credit crunch will reach $945 billion, citing the breakdown in subprime mortgage markets in the US as one of the major reasons.

The International Monetary Fund (IMF) has estimated that banks and other financial service providers will suffer losses of $565 billion from US home mortgages. It has blamed poor government regulations and lack of firm supervision by banks, for the current condition. It has also warned that losses from subprime market may also spread to other financial sectors.

IMF has suggested the intervention of governments and central banks to bring changes in national and international financial regulations, which require banks to infuse more capital to protect against losses and improve risk management systems.

The IMF’s report warns that Despite unprecedented intervention by major central banks, financial markets remain under considerable strain, now compounded by a more worrisome macroeconomic environment, weakly capitalized institutions, and broad-based deleveraging.