As a result of the credit crisis, the world’s financial firms have lost £1.8 trillion, the Bank of England has estimated, adding that the total spending by governments and central banks to dig banks out of trouble totals £5 trillion.

The Bank has also warned that 1.2 million homeowners in the UK are likely to face going into negative equity if house prices continue to fall at the same rate.

The figures were revealed in the Bank’s latest bi-annual Financial Stability Report.

The Bank said that there may need to be a “rethink of how to safeguard against systemic risk”, to avoid a repeat of the current crisis.

The government recently announced a £37bn rescue package for RBS, Lloyds TSB and HBOS, and the Bank of England’s latest estimate on global losses is double the estimate it published in May.

According to the report the UK banking industry expanded to fast when times were good, never taking the time to build solid foundations. When the crisis hit, the banking system couldn’t cope.

Sir John Gieve, the Bank’s deputy governor said: “Looking further ahead, we need a fundamental rethink of how to manage systemic risk internationally.

“We need to establish stronger restraints on the build-up of risks in the financial system over the cycle with the dangers they bring to the wider economy.”

The report outlined some measures that included a “leverage ratio” which would reduce the growth in banks’ balance sheets to the size of their capital. Another suggestion was “dynamic provisioning”, which would encourage banks to build up their reserves or take out insurance rather than seek funding boosts.

The report pointed out that in 2001, customer lending in the UK was comparable to customer deposits. However, by the first half of 2008 the surplus of lending over deposits was £700bn.

The report said that banks should look to bolster their finances by ‘increasing customer deposits, holding more assets that are easy to sell and reducing reliance on wholesale money markets’.

In the US, the Federal Reserve is to have a meeting today to decide whether to reduce interest rates again. It is expected to cut rates to 1 percent from 1.5 percent, which would brig them down to the lowest level since 2001.

Analysts predict that should this happen, this will lead to a reduction of rates in European banks.

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