The global credit crisis is spreading and the risks facing the financial system are rising, according to the International Monetary Fund’s latest Global Financial Stability Report (GFSR).

The report, released today, estimates losses related to the current credit crisis at approximately $945 billion. “These estimates, while based on imprecise information about exposures and valuation, suggest potential added stress on bank capital and further writedowns,” reads the report. “Moreover, combined with losses to nonbank financial institutions, including monoline bond insurers, the danger is that there may be additional reverberations back to the banking system as the deleveraging continues.”

The IMF’s April report notes that issuance of most structured credit products is currently at a standstill and many banks are coping with losses and involuntary balance expansions. It looks at the forces that could push the current credit crisis off the cliff and turn it into a full credit crunch.

“It is now clear that the current turmoil is more than simply a liquidity event, reflecting deep-seated balance sheet fragilities, which means its effects are likely to be broader, deeper, and more protracted,” said the IMF.

The crisis has weakened the capital and funding the big financial institutions, which raises systemic risks, the IMF cautions. These financial institutions need to raise capital or cut back assets to deal with the strains, the report suggests. The stress boosts the downside risks for global financial stability and potentially forces institutions to further tighten credit, it added, noting that the macroeconomic effects could be severe.

“Financial markets remain under considerable stress because of a combination of three factors,” said Jaime Caruana, head of the IMF’s monetary and capital markets department, in an IMF release. “First, the balance sheets of financial institutions have weakened; second, the deleveraging process continues and asset prices continue to fall; and, finally, the macroeconomic environment is more challenging because of the weakening global growth,” he added.

The report also said that credit deterioration that started in the subprime market in the U.S. is now popping up in higher-quality residential mortgages, U.S. commercial real estate and the corporate debt markets.

The IMF warns in the April GFRS that financial institutions in other countries have been affected by the current market crisis and that there have been signs that house prices in European markets are also starting to fall.

While emerging market economies have been fairly insulated from the downturn so far, the report notes that financial conditions and low interest rates in some of these countries also means that risk taking has been higher. The countries that have experienced rapid credit growth—particularly those in emerging Europe—may be expecially vulnerable, said the IMF.

Repairing balance sheets should be the first policy priority, according to the April report. The big financial institutions need to move quickly to raise equity and medium-term funding, which the report says will boost confidence and avoid further undermining of credit channels.

As well, it said that more rapid and clear disclosure from financial institutions is needed, and national authorities should seek to quell fears and misperceptions by providing timely and accurate information.

The GFSR proposes that central banks and other relevant regulators issue special financial stability reports that could act to calm markets. As well, there may be a need to shore up the prices of various types of securities to prevent fire sales, it added

“Looking forward, recent developments suggest that central banks need to reflect further on the role that monetary policy may have played in fostering a lack of credit discipline and to improve their instruments for relieving liquidity stress in today’s more global financial system,” reads the report.