Doubts over the effectiveness and costs of drastic new measures in the United States, Britain and Europe to stabilise the global financial system were voiced in Davos at the weekend by leading economic and financial experts.

Leading economists challenged the effectiveness of Gordon Brown's plan to ring-fence distressed loan assets in British banks through a system of government guarantees that may also be adopted by President Obama.

Mr Obama is poised to announce a package this week to clean up US banks that is likely to include creating a “bad bank” to take over and hold the toxic assets clogging the American financial system.

Angela Merkel, the German Chancellor, is working on plans for a rescue based around a bad bank approach in Europe's biggest economy.

There is speculation that the Irish Government is set to invest €7 billion (£6.1 billion) in the country's two biggest banks this week. Under the recapitalisation scheme, Allied Irish Bank (AIB) and Bank of Ireland would receive €3.5 billion each in preference shares, as well as government guarantees for more than €24 billion in bad loans. All UK Post Office accounts are operated by the Bank of Ireland.

There were intense talks over the new scheme, which will supersede the Government's first plan to inject €2billion into each bank, over the weekend, sources at the Irish Department of Finance said. An AIB spokesman said that the new figures were speculation.

It is understood that Dublin is keen to act before credit ratings agencies review Ireland's rating. Moody's has already put a “negative” outlook on the Republic. The Irish Government nationalised Anglo-Irish bank, the country's third-largest bank, last month.

Some of the world's leading policy experts in Davos were sharply at odds over whether a state-backed bad bank would prove effective in reviving stalled flows of credit to households and businesses.

Banking and business leaders at the World Economic Forum expressed frustration at the lack of a consensus on how to combat the crisis and at the slow pace of government action. The expected US Treasury move to switch from bolstering banks with vast new capital injections, mirroring Britain's previous measures, back to an initial bad bank plan to buy distressed securities linked to past loans was attacked by Joseph Stiglitz, the influential Nobel laureate in economics.

Professor Stiglitz, former chairman of President Clinton's council of economic advisers, said: “You should not chase good money after bad money. This is a new version of the old idea that I thought had been discarded, which was the ‘cash for trash' idea. The new proposal is ‘buy garbage in bulk'.”

Professor Stiglitz said that the costs of operating a bad bank, which is expected to have an initial purchasing power of up to $1 trillion (£691 billion) in the United States, could escalate. “If we do not do it right, we are talking about a national debt that is hard to manage.”

However, the bad bank proposals being hatched in Washington and Berlin, and expected by some to follow in Britain, were defended by Alan Blinder, former vice-chairman of the US Federal Reserve and a Princeton economics professor. “What is the alternative? Leave the banks that are under water to drown?” he said.

Professor Blinder questioned the British plan to guarantee toxic assets while leaving them on bank balance sheets, which is being looked at in Washington. “You do not insure a risk that has already happened — you don't buy fire insurance for a house that has already burnt down,” he said.

Angel Gurría, Secretary-General of the Organisation for Economic Cooperation and Development, said that bad bank schemes were the least worst option. The absence of viable alternatives meant that there was no choice.

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