An International Monetary Fund report, warning the widening global turmoil from the credit crisis could cost $1trillion, concluded there was a ‘collective failure to appreciate the extent of the leverage taken on by a wide range of institutions and the associated risks of a disorderly unwinding’.

The report pinned the blame on reckless banks and their bosses, careless investors, lax regulators, rating agencies which lacked rigour and insufficiently austere central banks, according to The Times.

‘Private sector risk management, disclosure, financial sector supervision and regulation all lagged behind the rapid innovation and shifts in business models, leaving scope for excessive risk-taking, weak underwriting, and asset price inflation,’ the IMF report found.

Banks overestimated the extent to which, by offloading loans through both ‘off-balance sheet vehicles’, unpoliced by regulators, and by selling them on through securitisation, they could then also offload their risks.

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