By Brian Love

WASHINGTON (Reuters) - The world's industrialised powers urged banks on Friday to come clean quickly and clearly on losses incurred since the credit boom of recent years went belly-up last August.

Banks, investors and credit rating agencies grossly underestimated the risks behind a credit boom where use of debt derivatives and mortgage-backed securities blossomed under sloppy management and weak supervision, and fraudulent practice at times, said a report by the Financial Stability Forum, approved by G7 finance ministers and central banks.

"We strongly encourage financial institutions to make robust risk disclosures in their upcoming mid-year reporting consistent with leading disclosure practices as set out in the FSF report," G7 finance ministers and central bankers said in a statement, noting that it had been approved by all at the meeting.

The FSF issued a long list of recommendations for short- and long-term reforms in response to the paralysis which has plagued markets since the U.S subprime mortgage crisis snowballed eight months ago.

Government oversight was lacking too, the FSF forum said in a 75-page report, which proposed raising capital requirements and beefing up other aspects of financial market behaviour in a bid to restore confidence in the short and long term.

"Market participants severely underestimated default risks, concentration risks, market risks and liquidity risks," it said.

The FSF proposed raising the capital requirements of the so-called Basel II accord for certain complex structured credit products and adding new requirements for default and event risk on banks' trading books.

Noting this should happen over time so as to not add to current stress, it also recommended strengthening the capital treatment of liquidity facilities to off-balance sheet conduits.