The IMF said governments had made progress in pumping further funds into the banking system, but more must be done to contain so-called toxic assets on banks' books and shutting down insolvent financial institutions.

"The global financial system remains under severe stress as the crisis broadens to include households, corporations, and the banking sectors in both advanced and emerging market countries," the report said.

"Continued decisive and effective action is needed to preserve and strengthen these first signs of improvement, and to help provide a more stable and resilient platform for sustained global growth."

The report comes before a series of meetings this weekend among the nations that serve on the steering committees of the IMF and the World Bank.

'Decisive' action

The estimate, which covers the period from the beginning of the financial crisis in mid-2007 to 2010, was published in the IMF's latest Global Financial Stability Report (GFSR) on Monday.

Obama and world leaders at the G20 summit
pledged further support for the IMF [Reuters]
IMF economists said that strengthening the banking system would require $275bn in the US and $600bn in Europe, while for institutions to return to financing levels of the mid-1990s, the amounts would have to rise to $500bn in the US and $1.2tn in Europe.

The organisation said there were some "early signs of stabilisation" in the global financial system but that further "decisive and effective" action was needed to restore public confidence in financial institutions, particularly in Europe where several banks faced problems from their exposure to emerging European financial markets.

Colombia asked for $10.4bn in financial aid from the IMF on Tuesday, becoming the third country this month after Poland and Mexico to use a new programme of the organisation.

The programme extends credit to countries with solid economic track records without the tough restrictions of normal IMF loan programmes.

Reform criticism

The scheduled talks for this weekend will seek to expand on commitments made at a G20 leaders summit in London last month, where Barack Obama, the US president, and other leaders pledged to boost financial support for the IMF and other international lending institutions by $1.1tr.

Emerging economic powers like China and Brazil are demanding a bigger voice in how the IMF and World Bank are run in return for their increased support.

Reform has become a key issue for both organisations and in particular the IMF, which has faced strong criticism a decade ago for its handling of the 1997-98 Asian currency crisis.

It has also been criticised for the stringent reforms it imposed on countries seeking IMF loans, which some countries have said are restrictive and untenable.