The overseer of the global company says that losses are spreading from sub-prime mortgage assets to other sectors, such as commercial property, consumer credit, and company debt. It says that there was a "collective failure" to appreciate the risky borrowing by financial institutions. And it warns that tough measures and government intervention may be needed.
The report warns that "despite unprecedented intervention by major central banks, financial markets remain under considerable strain, now compounded by a more worrisome macroeconomic environment, weakly capitalized institutions, and broad-based de-leveraging."
The IMF says that the effects of the credit crunch are likely to be "broader, deeper and more protracted" than in previous downturns, due to the "degree of securitization and leverage in the financial system".
It blames lax regulation by governments and poor supervision by banks for allowing the situation to develop.
And it warns that national governments must prepare contingency plans "for dealing with large stocks of impaired assets" if "write-downs lead to significant negative effects on the real economy".
The report comes ahead of a gathering of world financial leaders at the IMF's spring meeting in Washington DC.