The global financial system remains "fragile," with sovereign debt posing a risk to markets and substantial losses expected from commercial real estate, the International Monetary Fund said.

Banks may need to significantly increase their capital to support the credit recovery and help sustain economic growth, the IMF said Tuesday in an update to its Global Financial Stability Report, last published in October. Emerging economies should be prepared to protect against capital inflows that are beginning to create asset bubbles and pressures on exchange rates, the IMF, of Washington, said.

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