The International Monetary Fund (IMF) said on Tuesday that banks around the globe will need to write down about $4.1 trillion in loans and securities. So far, about one-third of that amount has been written down.

The global financial body also called for redesigning the global financial system to provide a ''more stable and resilient platform for sustained economic growth.''

 The Fund has increased its estimate of the potential losses in the US to $2.7 trillion, substantially higher than the $2.2 trillion it forecast in January and $1.4 trillion last October, as a result of the deepening economic slump over the past three months.

So far, the US banks have written down about $510 billion in assets.

The write-downs in Europe and Japan so far have totaled $154 billion, which is expected to go as much as $1.3 trillion over the next two years.

Meanwhile, the UK banks are facing losses of $316 billion through 2010, of which credit losses so far have been $110 billion, the IMF said.

In its half-yearly Global Financial Stability Report, the IMF said banks will bear about two-thirds of the write-downs, which are coming on $58 trillion of debt originated in the US, Europe and Japan.

The report said banks needed larger capital injections to weather the expected losses and restore investor confidence in the battered financial system.

It may need additional capital of $275 billion to $500 billion in the US, $125 billion to $250 billion in Britain, and $375 billion to $725 billion in the euro area.
Banks worldwide have so far raised about $900 billion in capital, about half of it through government rescue loans.

Jose Vinals, director of the IMF's monetary and capital markets department, said continued decisive and effective action to clean up banks' balance sheets is needed to restore confidence and economic growth.

"The deleveraging process is ongoing and high write-downs, together with market demands, will require financial institutions to hold more capital," he said at a news conference.

"Some of these capital needs could be satisfied directly with a conversion of (government) preferred shares to common shares, or indirectly with government guarantees to cover losses," Vinals said.

"Sensibilities have changed. What seemed ludicrous now seems quite mild," the IMF's first deputy managing director, John Lipsky, said, referring that just a year ago the fund was criticised for estimating losses of just $1 trillion on bank assets.

"Europe has recognised its exposure to US toxic assets but still in the pipe, if you like, is the economic deterioration that is taking place in Europe through the loan book and also its exposure to emerging Europe, which is now in decline," said Peter Dattels, chief of the IMF's global markets monitoring and analysis division.

Since the start of the crisis, market capitalisation of global banks has more than halved to $1.6 trillion from $3.6 trillion.

The report said that even if policy actions were swift and worked as planned, recovery for the financial sector would be long and painful and economic recovery would be protracted.

''Banks are expected to post losses through 2010 before returning to modest levels of profit, which would lead to a credit famine in Britain, the US and Europe'', it added.

Lending between banks came to a halt in August 2007 when the financial markets first became aware of the impact of losses in the US sub-prime mortgage market, IMF noted.

The slowdown in lending still persists, despite being bailed out by the taxpayer. "As a result, many corporations are unable to obtain bank-supplied working capital and some are having difficulty raising longer-term debt, except at much more elevated yields," the report said.