The International Monetary Fund (IMF) has warned that potential losses from the credit crunch could reach $4 trillion (£2.75tn) and damage the financi

t says that even if urgent action is taken to clean up the banking system, the process will be "slow and painful", delaying economic recovery.

It says that banks may need $1.7 trillion in additional capital.

And it warns that the cost of the bail-out will hit UK government finances.

It estimates that the total costs of bailing out the UK banking will add 13.4% to total government debt, or around £200bn - compared to 12.1% in the US and 13.9% in Ireland.

But a Treasury spokesman told the BBC that the IMF forecast was "very high" and took no account of the fees paid by the banks.

He added that the Budget "will make a prudent provision for potential losses from banking interventions".

Tory shadow chancellor George Osborne said the IMF figures showed the "potentially massive cost of Gordon Brown's utter failure to regulate the banking system".

WHY $4TN LOSS MATTERS



* The banks' huge losses have made them reluctant to lend
* The lack of lending has pushed the world economy into a deep recession
* Government budgets are strained by the cost of the bail-outs, hitting taxpayers


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