Washington: An influential international banking lobby group has called for urgent and bold actions globally, particularly from European nations, to stabilise troubled financial markets.

A systemic, internationally coordinated response in the US and Europe was essential at this point, even requiring large - if temporary use - of government funds, Charles Dallara, director of the Institute of International Finance (IIF), said Thursday.

"The global financial system is facing the most extraordinary challenges of the last eight decades, requiring prompt, internationally coordinated actions if a global recession is to be avoided," said an IIF letter drafted Thursday to finance ministers and central bank governors meeting in Washington next week at the International Monetary Fund (IMF).

Dallara said the IMF needed to play a leading role in addressing the financial turmoil and would have to urgently change to be effective in dealing with the financial crises of the 21st century.

He also called for the inclusion of emerging economies in the G-7, the group of leading industrialised democracies, echoing a call by French President Nicholas Sarkozy at the UN General Assembly last week.

While acknowledging that US Treasury Secretary Henry Paulson's $700 billion financial rescue plan "can have a catalytic effect on markets", Dallara said it wasn't enough. The US House of Representatives could vote Friday on a second version of the emergency bill that failed Monday, sending markets plunging.

Dallara called Paulson's proposal "a turning point" because it showed the way ahead for governments to step in, in times of crises.

In its letter to the IMF, the lobby group noted that the world was at a crucial point in international regulatory development.

"Either we fall back into national approaches resulting in a fragmentation of the global regulatory environment, or we reach out to strengthen international coordination," it said.

Dallara told reporters that it was clear the IMF needed to change, and the financial meltdown showed that this was the time for it.

"There has been no better opportunity in the last 60 years, and no greater need, for the IMF to change," Dallara said.

He suggested that at its meeting next week, the IMF should frame a resolution to guide a compatible global approach to the turmoil and perform the role of multilateral coordinator.

He also spoke of the benefits of European governments creating a common pool of funds that would tide them over future financial crises and assist banks that were burdened with toxic assets.

The ongoing credit crisis has made it clear that countries needed to take a broader, macro-economic view of finding innovative solutions, Dallara said, adding that "emerging markets deserve a larger presence at the decision-making table and in the G-7", referring to the group of leading industrialised nations.