The warning came after Barclays shocked the City with the disclosure that it had lost pounds 335m in the Russian debacle. Mr Taylor said the fact that a big nation had defaulted on its obligations would create shockwaves around the globe. He said the natural reaction of banks after the crisis would be to rein back on lending at a time when large swaths of the world economy are already in depression.
Japanese and Asian banks were no longer lending to the rest of the world, and if banks in the United States and Europe followed suit, the outlook would be bleak. "The prospects for the world economy are materially worse than they were four weeks ago," said Mr Taylor.
"It is dangerous nonsense to say that Russia's economy is no bigger than Luxembourg's and in any case it is ring-fenced from the rest of the world."
Barclays' disclosure caught the City completely by surprise. Although some of the large American banks and hedge funds were known to be taking big bets on Russia's reformers getting their way, British banks had maintained that their own exposure to Russia was minor.
Over the past few days, some of the big US banks have disclosed losses of up to $500m (pounds 307m) - in some cases wiping out their entire profits from elsewhere in the world.
Other UK high-street banks moved quickly to calm market fears that they too had suffered big hits.
Lloyds-TSB, National Westminster and Hong Kong & Shanghai Bank (HSBC), the world's largest bank and parent company of Midland and First Direct, have all described their lending to Russia as "minimal" in comparison.
Elsewhere in the world, stock markets paused for breath after nearly two weeks of falls. After losing 512 points on Monday, Wall Street bounced back, with the Dow Jones index rising 300 points.
n The Hong Kong Monetary Authority confirmed last night that it has built up an 8.9 per cent holding in HSBC. The stake will raise fears of "backdoor nationalisation" by the Chinese.
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