Global financial institutions hold $1.4 trillion US in near-worthless commercial paper, or twice the value of the financial rescue plan recently passed by the U.S. Congress, according to a report released Tuesday by the International Monetary Fund.

In its Global Financial Stability Report, the IMF boosted by 50 per cent its estimate of anticipated writeoffs that banks, insurance companies and other companies will likely take in the current global meltdown.

So far, the private sector has taken approximately $560 billion in writeoffs of financial instruments backed by property mortgages, the IMF estimated.

But this process is becoming increasingly chaotic, the group said, noting that the state of the global financial system has worsened since its last assessment in April 2008.

"The ongoing de-leveraging process has accelerated and threatens to become disorderly, increasing the risk [of] a severe adverse feedback loop between the financial system and the broader economy," the IMF's report said.

In April, the monetary think-tank figured financial losses from writing off holdings of asset-backed commercial paper at $945 billion.

September chaos

In the intervening five months, however, the anticipated orderly movement to get these bad debts off company books without huge financial dislocation evaporated.

September's bankruptcy of Lehman Brothers loosed the hounds of financial chaos as governments in the United States and Europe were forced to take over failing banks and insurance companies in an attempt to limit the economic impact of this turmoil.

The most concerted rescue effort was launched by the U.S. Congress, which in October pushed through a controversial $700-billion bailout package to assist financial institutions in reducing their bad debt while remaining solvent.

Even this large government boost is not sufficient, the IMF said.

"Today's(...)report shows how serious a crisis we currently face," IMF managing director Dominique Strauss-Kahn stated.

"The time for piecemeal solutions is over. I therefore call on policymakers to urgently address the crisis at a national level with comprehensive measures to restore confidence in the financial sector. At the same time, national governments must closely co-ordinate these efforts to bring about a return to stability in the international financial system."

The monetary co-ordination body said banks need to raise an estimated $675 billion, something they are currently unable to do.

Thus, governments need to step in to prop up failing banks through public money as well provide financial liquidity via national central banks.

Standardization effort

Europe has taken some small steps towards policy co-ordination with a series of meetings this week designed to standardize the size and type of bank deposits that governments will guarantee.

So far, Ireland, Iceland and other countries have recognized the need to ease the concerns of depositors that banks in financial difficulty still have cash on hand. But these governments are guaranteeing different deposits to different financial levels.