The world’s big banks are to face stronger demands from finance ministers and central bankers of the Group of Seven (G7) leading economies to declare the full scale of their exposure to losses from the US housing market slump and the global credit crunch.

The G7 move comes after the Financial Stability Forum (FSF), the policy group of leading economies’ finance ministries, regulators and central banks, said at the weekend that lack of clarity over the extent of banks’ losses is worsening the credit crunch.

The G7 meeting at the end of next week between ministers and central bankers is expected to be accompanied by announcement of a UK-US working group to develop proposals to monitor the banking system. It is believed that last week Alistair Darling met Hank Paulson, the US Treasury Secretary, to agree a body made up of senior government and regulatory respresentatives from London and Washington.

The warning from G7 meanwhile came as the Basle-based FSF finalised a report to G7 finance ministers on responding to the credit crisis, including recommendations for toughening regulation and scrutiny of financial institutions and markets.

In a call for greater disclosure of banks’ losses, after two days of talks in Rome, the FSF said: “Financial institutions should continue enhancing their disclosures of risk exposures . . . While the necessary deleveraging has been ongoing since last summer, the process is being complicated by a lack of transparency and valuation difficulties from some credit instruments.”

The demand came after a fortnight of market upheavals and a resurgence in money market stresses that induced Mervyn King, Governor of the Bank of England, to say last week that the credit crunch had entered a “new and difficult phase”.

The FSF said that central banks in the big economies would continue to “provide liquidity to address market pressures . . . as long as needed”.

After turbulence in London markets was compounded by a rumour-mongering conspiracy to undermine shares in HBOS, the bank group, the FSF also issued a warning against any other attempts to exploit market fragility in a criminal way. It said: “Authorities will also act cooperatively and swiftly to investigate and penalise market abuse or manipulation.”

The FSF said that its recommendations to the G7 on preventing repetition of the present credit crisis covered banks’ controls on capital adequacy, liquidity and risk; the transparency of institutions’ financial positions and valuation of complex products, such as asset-backed securities; the role and use of credit ratings; and the ability of financial authorities to respond to market turmoil.

“These recommendations are concrete and operational and, if approved, the FSF will report on their prompt implementation,” the forum said.

G7 sources said that it remained unclear how extensive immediate agreement between governments at next month’s Washington talks on how to proceed with the FSF advice would be.

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