An international lobby group for bankers is calling on the world’s policymakers to put their taxpayers’ funds to work to save the global financial system.

In a policy letter sent Thursday from the Institute of International Finance Inc. to the finance ministers and central bank governors that are meeting in Washington D.C. next week at the International Monetary and Financial Committee, the group called for the passage of proposed U.S. bill to bailout troubled mortgage-backed securities.

“Systemic, internationally co-ordinated responses by the authorities are essential at this stage to stabilize financial markets, requiring large if temporary use of government funds,” says Charles Dallara, managing director of the IIF. “Still more needs to be done to set global financial markets on a path toward stability and recovery, including bold, pre-emptive actions by European authorities.”

The IIF says that governments, central banks and regulators need to continue their efforts to restore the normal functioning of the critical interbank and money markets. Additionally, it says that both U.S. and European authorities need to formulate frameworks for bank resolution and recapitalization. Financial firms need to raise additional capital and strengthen their business practices. And, finally, that macroeconomic policies need to be supportive of the immediate goal of stabilizing markets.

The IIF emphasized that, where absolutely necessary to preserve systemic stability, government capital should be temporarily injected. And, it said that to attract private capital, some preference should be given to new investors, including long-term investors such as pension funds and Sovereign Wealth Funds.

Dallara also says the crisis underscores the need for regulatory reform. Gaps in the regulation of mortgage lending require immediate action, and reinvented techniques for supervision of large, complex and internationally active institutions may well be needed. The focus should be on more efficient and more globally coordinated supervision, he said.

Additionally, Dallara advocates the establishment of a new global regulatory co-ordinating body “mandated to monitor and co-ordinate financial regulation and supervision on an internationally consistent and convergent basis, for systemically important firms. In that connection, the need for a globally consistent framework for insurance regulation also requires attention.”

In order to guard against future crises, the IIF will also launch a Market Monitoring Group designed to detect the emergence of vulnerabilities with systemic implications, and to identify developments that could lead to major system-wide strains.

He is also calling on the Financial Stability Forum to initiate a high-level dialogue to examine issues relating to Fair Value accounting, including ways to mitigate unintended procyclical effects, while reinforcing investor confidence and accelerating convergence between different accounting standards. And he is calling on the IMFC to consider a series of additional actions, including: strengthening the global consistency and efficiency of regulatory policies; structural reforms to address distortions in the markets for energy and agricultural products, as well as to improve the flexibility of labor and product markets; and, institutions and mechanisms for multilateral cooperation need to address the current challenges without succumbing to the forces of disintegration and nationalism.