Jose Vinals, director for the International Monetary Fund's monetary and capital markets division, speaks during a news conference on the IMF's release of the Global Financial Stability Report (GFSR) in Istanbul, Turkey, Sept. 30, 2009. Global financial stability has improved following unprecedented policy actions and signs of economic recovery, but overall risks remain elevated, the IMF said in the GFSR. (Xinhua/Zhang Meng) Photo Gallery>>>

    ISTANBUL, Sept. 30 (Xinhua) -- The International Monetary Fund (IMF) Wednesday lowered its estimate of losses from the global financial and economic crisis to 3.4 trillion U.S. dollars, saying the global financial stability "has improved."

    Global financial stability has improved following unprecedented policy actions and signs of economic recovery, but overall risks remain elevated, the IMF said in the Global Financial Stability Report (GFSR) released on Wednesday.

    "Our estimate of global losses arising from the crisis now stands at roughly 3.4 trillion dollars, around 600 billion dollar slower than the last GFSR, largely due to rising securities values," the semi-annual report said.

    The estimate covers the period from the beginning of the financial crisis in mid-2007 to 2010.

    The Washington-based lender previously projected in April the total losses from the crisis at 4.054 trillion dollars, including 2.712 trillion dollars in losses in U.S.-originated assets.

    However, the report at the same time plays down recovery prospect by saying that financial institutions continue to face three main challenges, namely rebuilding capital, strengthening earnings, and weaning themselves off government funding support.

    Securities write-downs have begun to taper, but credit deterioration will continue to lead to higher loan losses over the next few years, it said.

    Banks have enough capital to survive, but they remain under de-leveraging pressure, the report said. With stead-state earnings likely to be lower in the post-crisis environment, stronger action is needed to bolster bank capital and earnings capacity to support lending, it added.

    For emerging markets, the report said Asia and Latin America have benefited most from the stabilization of core markets and a recovery in portfolio inflows, and the tail risks in those emerging markets have declined as a result of strong policy measures.

    Meanwhile, the analytical report said policymakers face considerable near-term challenges, including ensuring sufficient credit growth to support economic recovery, devising appropriate exit strategies, and managing the risks arising from heavy public borrowing.

    It advised that policymakers, in the medium term, should seek to restore market discipline, address risks posed by systemic institutions, institute a macro-prudential policy approach, and strengthen the oversight of cross-border financial institutions.

Special Report:  Global Financial Crisis