The International Monetary Fund (IMF) warns the credit crunch still has some way to go before an end is in sight.
According to the IMF's quarterly World Economic Outlook report, it expects the current economic malaise to last well into 2009, and cannot predict when the crunch might come to an end.
The report repeats an April 2008 estimate that financial institutions will lose $1trn from mortgage-backed assets, with nearly $500m already written off.
However, the IMF is worried banks have only raised enough capital to cover two thirds of the losses so far, and are likely to become more restrictive in their lending practices.
Credit risks are also spreading from the sub-prime sector in the US, according to the report, with other mortgage types, credit cards and car loans also becoming more risky.
The IMF also warns eastern emerging markets, such as China and India, will not be immune and could see serious economic setbacks in the near future.
Stock markets in emerging economies have suffered, and China is the largest holder of bonds issued by ailing US lenders, Fannie Mae and Freddie Mac.
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