Policymakers representing the world's biggest financial centres have failed to make the banking sector stand on its own feet by ending implicit subsidies and co-ordinating rescue plans when multinational banks go bust, the Washington-based lender of last resort said.
In a hard-hitting report, it accused policymakers of falling short in their efforts to protect taxpayers from banks that are still too big to fail.
Subsidies to the banking sector in some countries are as high as they were before the crash, amounting to $590bn (£355bn), with the eurozone the worst affected.
The IMF praised efforts to make banks more secure, particularly by forcing them to hold more capital and through rules that restrict them from making risky loans. It said the US had limited its implicit subsidy to the banking sector to $70bn (£42bn) at most.
A week before vital meetings of G20 ministers in Washington, it said efforts such as the Dodd-Frank Act in the US and the Vickers report in the UK limited the scope for banks to embark on reckless lending and then need a taxpayers' bailout if they went bust.
But in its Global Financial Stability Report, the IMF said the impact of a bank crash would still be severe and could destabilise the international financial system. It said the implicit subsidy for banks in the eurozone could be as much as $300bn (£181bn).
It said Basel III rules that force banks to hold more capital should be implemented alongside more co-ordination of international rules.
"In areas such as the implementation of resolution frameworks or structural reforms, countries have adopted policies without much co-ordination. These solo initiatives, even though individually justifiable, could add unnecessary complexity to the regulation and consolidated supervision of large cross-border institutions and encourage new forms of regulatory arbitrage," it said.
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A big anti-austerity demonstration has been taking place in the European quarter of Brussels, where EU offices are located.
Water cannon and pepper spray were used to try to disperse protesting Belgian trade unionists near the headquarters of the European Commission and the European Council.
Thousands of people have been marching through the streets carrying banners and placards criticising the austerity policies which are supported by EU institutions. They include demonstrators from other EU countries.
There is a big police presence and many roads in the area have been cordoned off.
If you ever get the right security clearance and make it up to the 12th floor of the European Commission building in Brussels, keep an eye out for the private meeting room of the man in charge of Europe's Internal Market and Services, France's Michel Barnier.
On the wall he has hung a map of the world. A Chinese map of the world. With the Pacific Ocean at its centre and Europe a distant shore that almost falls off the far left hand end of the chart.
He keeps it as a reminder - as far as he's concerned - that Europe will only survive in today's global economy if it sticks together.
China is important - crucial. That's why the Chinese president - who's just left after a lengthy tour of Germany, France, The Netherlands and Belgium - was so feted wherever he went.
China printed money! That is the truth. It's manufacturing base was created by the printing of money. It now is no economic miracle as its loans are unknown even to those high up in the party. It cannot create a consumer society as it feeds the elite with ridiculous sums, just like it is doing here. It has created a monster which requires constant feeding at the expense of its own people! It does not wish to share its capital wealth and even benefits to health are denied to its own people.
Analyse and take a closer look. All governments are becoming crooked across the world.
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