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Oct 7, 2008, 13:23 GMT

IMF forecasts 1.4 trillion dollars in financial losses (1st Lead)

Washington - The International Monetary Fund (IMF) warned on Tuesday that US financial sector losses could total 1.4 trillion dollars as the housing crisis at the centre of the turmoil has yet to reach its peak. The IMF, in its annual financial stability report, warned that the rate of US mortgage defaults that sparked the financial crisis has yet to reach its peak, despite a year of homeowners already defaulting on their loans in record numbers. Banks will go under, and financial institutions will face an 'inevitable' restructuring period as they battle to raise the capital needed to bolster their own balance sheets, the report said. But the IMF urged governments in the worst-hit countries - mainly United States and Europe - to take coordinated action to quell the market instability, set up a better regulatory framework to prevent future collapses and provide surviving banks with the help they need. 'What is needed now is a decisive and coherent international response that is systemic in its nature to ensure that the de-leveraging process remains orderly,' said Jaime Caruana, head of the IMF's Monetary and Capital Markets Department in a separate statement. The advice comes as European Union finance ministers agreed Tuesday to raise bank savings guarantees from 20,000 euros (27,200 dollars) to at least 50,000 euros in a bid to quell the concerns of consumers. The United States raised its own savings guarantees last week from 100,000 dollars to 250,000 dollars. Emerging economies will not be insulated from the financial crisis in industrial nations, the IMF warned.

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