Brown and Sarkozy to urge banks to admit full losses

The premiers of both the UK and France are to demand that banks disclose all their bad debts, which could amount to a staggering $600bn (£302bn), five times the sum already written off since November, in a bid to bolster confidence in the floundering financial markets.

Gordon Brown and the French President, Nicolas Sarkozy, are to hold a summit in the UK on Thursday, and will use it to pile pressure on the banks in a bid to clarify some of the uncertainty damaging confidence in the current climate.

An official at No 10 said that the two leaders would call for "greater transparency in financial markets and, as a first step, full and immediate disclosure of the scale of write-offs by banks."

The official said that the Prime Minister and M. Sarkozy were becoming increasingly concerned that confidence in financial markets "is being affected by uncertainty over the scale of bad debt on banks' books, with some estimates putting this at $600bn".

Banking groups have already written off $125bn (£63bn) in assets worldwide over the past five months, following the onset of the credit crunch.

Senior bankers have warned in recent weeks that the disclosed writedowns might just be the tip of the iceberg, although it is impossible to estimate the exact scale of the losses with any degree of confidence.

The official from Mr Brown's office said: "Events in recent weeks, especially the collapse of Bear Stearns, have demonstrated the scale of the problem and the effect on market stability of difficult-to-value assets and of undisclosed losses becoming known in a piecemeal fashion."

Banks across the globe have been forced into admitting bad debts as a result of the crisis, brought on by the collapse of the sub-prime market in the US last summer.

Among the worst hit were Citigroup, Merrill Lynch and UBS. UBS revealed last week that its chairman had taken a 90 per cent pay cut after the Swiss bank suffered its first full-year loss. It had been forced into writedowns of $18bn, "almost completely from our exposure to the US residential real estate market through positions in mortgage-backed securities and related structured products".

One head of investment banking at a financial services group in Europe said: "The worst is yet to come. Conservative estimates say that we could be halfway through the writedowns. It could be even more."

Mr Brown and M. Sarkozy will also use this week's summit to express concern over the role of credit rating agencies. They will call for transparency over how the agencies operate as well as how they value the assets and liabilities of financial institutions.