The Bank of England has said in a report that the current credit crisis has cost a mammoth $2.8 trillion (£1,800bn).

The Bank's Financial Stability Report (FSR) also said UK banks could face a raft of checks and balances to avoid a repeat of the current crisis in a "fundamental rethink" of risk.

It said the industry expanded too far in the good times without strong enough funding to cope when things turned sour.

The warning comes after a month of turmoil which has seen banking bailouts across the globe - including a £400 billion rescue package for UK banks.

Banks could now be reined in through a series of measures to ensure they have enough funds to survive without help during the next downturn, the FSR said.

These could feature a so-called "leverage ratio", which would peg back the growth in banks' balance sheets to the size of their capital.

Other moves suggested include "dynamic provisioning" - forcing banks to build up loss reserves during healthier times - or requiring them to buy a form of "catastrophe insurance" against needing a sudden injection of funds.

"It is clear that more attention needs to be paid to countercyclical regulatory measures," the report said.

Sir John Gieve, the Bank's deputy Governor for financial stability, said the financial system was still under strain, but "better placed" due to the unprecedented capital injections and guarantees.

But he added: "Looking further ahead, we need a fundamental re-think 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."

According to the FSR's estimate, Governments around the world have spent more than £750 billion so far in coming to the aid of banks.

Banks need to strengthen their finances by increasing customer deposits, holding more assets that are easy to sell and reducing their reliance on wholesale money markets, the report said.

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