Gordon Brown said today that there was "bad news still to come" in the unfolding story of the global credit crunch and market turmoil.

The Prime Minister called for urgent action to increase the transparency of financial dealings as well as a re-think of the pricing of risk which had been "misunderstood" and under-valued.

He told delegates at the World Economic Forum in Davos today: “This is indeed a testing time for the global economy, for all of us who believe that globalization is about free trade.”

But he said: “There is a real danger that we fall for the familiar responses that we have seen in past decades, the first is … heavy handed regulation, the second thing is to resort to protectionism and I see it in America and parts of Europe and the third is to be paralysed into action.”

In a world of global markets, national supervision was not working, he suggested.

"The world needs most of all a better early warning system so people can be in far greater communication," Mr Brown said.

"There is also a danger, I think, with bad news still to come, of being over optimistic ... and overemphasising the silver lining at the expense of some of the clouds."

Mr Brown arrived late in Davos this morning after another delayed flight - but it nothing like as serious as his late departure from Heathrow for China last week after a BA aircraft missed the runway.

The Prime Minister also lamented the lack of a coherent world system for tackling greenhouse gases.

He urged the World Bank to modernise itself into a carbon bank within a year to tackle global climate change.

Only a global fund could persuade developing countries to drop fossil fuels, he said, as he expanded on his call for urgent reform of the world's outdated institutions.

"I cannot see why we do not move immediately for the World Bank to become a world environment bank," Mr Brown said.

"We need an institution that is global, that can provide for countries that want to move to alternative sources of energy but who will simply build coal-fired power stations without an institution that has prepared to loan or give grants.

"If in the next year we do not make progress on a world bank for the environment, because climate change hits the poorest countries hardest, we will be failing in our duties."

He repeated a call he made last year at the World Economic Forum for changes to the United Nations and International Monetary Fund to become a kind of global central bank - an idea given extra urgency by the crises which have dominated discussion at Davos this year.

Mr Brown said: “said: “Let’s be honest ... we’re dealing with institutions, in the IMF and the

World Bank, and the United Nations for that matter, which were built for problems of the 1940s and can’t deal with the new problems that we have in 2008.”

Mr Brown said: “The new problems are not just globalisation at an economic level, but climate change … conflict ridden states …we don’t have proper mechanisms either for dealing with problems like non-state terrorism. We have global pandemics and I don’t think that we have woken up to the power of the internet.”

The Prime Minister said: “If we don’t reform, our global institutions will become irrelevant.”

Mr Brown also called for the setting up of a rapid response force which could send not just troops but police, judges and civil servants into states into failed states.

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