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In a new Global Financial Stability Report released Tuesday, the International Monetary Fund sent a stark warning to economic and political leaders, asserting that more will have to be done to shore up the global financial system.

The IMF estimates that "writedowns could reach a total of around $4 trillion, about two thirds of which would be incurred by banks." Writes the IMF,

"Without a thorough cleansing of banks’ balance sheets of impaired assets, accompanied by restructuring and, where needed, recapitalization, risks remain that banks’ problems will continue to exert downward pressure on economic activity."

While the IMF acknowledges that "there has been some improvement in interbank markets over the last few months," the report also states that "funding strains persist and banks’ access to longer-term funding as maturities come due is diminished."

Of course, when reading the IMF's report, it should be remembered that the IMF is hardly a disinterested bystander. Rather, the mission of the IMF is to support global economic growth and financial stability. By warning that losses could reach into the trillions, the IMF is essentially giving cover to politicians eager to increase the size of their bailouts of the financial system.

Disclosure: No positions.

Source: IMF Says Bad Asset Write-Downs Could Reach $4 Trillion