The International Monetary Fund Tuesday said the turmoil in world credit markets that began with rising home loan defaults in the United States is not over and losses could hit $945 billion as the impact spreads into the global economy.  The Bloomberg financial news services estimates that banks and securities firms have so far written off only a fraction of that total, $232 billion. VOA's Barry Wood has more from Washington.

IMF specialists say the overall risks to global financial stability have increased sharply in recent months. Jaime Caruana is the principal author of the IMF report on financial stability.

"The credit shock emanating from the US subprime crisis is set to broaden amid a significant economic slowdown," he said.  "The deterioration in credit has moved up and across the credit spectrum."

As bank losses have soared, lenders have tightened standards and, despite lower interest rates, many commercial and consumer loans are still hard to come by. Caruana says more than six months into the crisis, credit markets are still not functioning normally.

"We have seen confidence quickly evaporate, ending in liquidity driven solvency events that threaten the core financial system," he added.

He is referring to the US central bank-orchestrated rescue of the Bear Stearns investment bank, which teetered on the brink of bankruptcy because of loan losses.
 
The IMF is not alone in its worry that the credit crisis could worsen. Morris Goldstein, a financial specialist at Washington's Peterson Institute, says if home prices continue to fall in the United States, defaults on mortgage loans could grow beyond the two million predicted for this year.

"It's been estimated that if US housing prices fall by an additional 15 percent or so, approximately a third of US homeowners will have negative equity in their homes," he explained.  "This raises the question of whether willingness to pay will have to be addressed along with ability to pay."

US home prices on average declined by 10 percent in 2007, a factor IMF economists say contributed to the global credit crisis.  Many US mortgage loans were bundled into securities and sold to financial institutions worldwide.

Caruana says if the situation worsens, it may be necessary for governments to spend taxpayer money to stabilize markets.

"I think we have to be careful on that," he cautioned.  "And the question is to what extent the situation continues to deteriorate."

The IMF says lax regulation and a failure to recognize the risks of highly leveraged loans contributed to the credit crisis. Financial markets, it says, will come under increased strain as world economic growth decelerates.