WASHINGTON (Reuters) - The fall of Lehman Brothers raises the risk of a deeper US recession that engulfs a broader swath of the global economy as skittish banks around the world lock their vaults.

Countries that had so far escaped the year-long credit crisis largely unscathed scrambled Monday to quantify the potential losses after Lehman Brothers Holdings Inc filed for bankruptcy.

Banks' borrowing costs soared because of the uncertainty over how far and wide the Lehman impact might extend. If that translates into a crackdown on lending terms for companies and consumers, the economic fallout will be severe.

US growth prospects already looked gloomy even before this weekend's drama, which also included Merrill Lynch agreeing to be bought by Bank of America and insurer AIG looking for financial help.

"At this point, the US will be lucky to escape with a mild recession," said Ken Rogoff, a Harvard University professor and former International Monetary Fund chief economist.

The pain quickly spread to Asia and Europe.

In Taiwan, which had reported little in the way of losses from the subprime mortgage mess, the top financial regulator said Lehman-related exposure for its companies and retail investors totalled $2.5 billion. Two Japanese banks appeared on the list of major Lehman creditors.

In Europe, Germany's Finance Minister Peer Steinbrueck said the initial impact on Germany was limited, but Economy Minister Michael Glos said Lehman's collapse could seriously harm Europe's biggest economy.

"We hope that we don't see a crisis which pushes the global economy to the brink of ruin," Glos said.

Across Europe, banks' funding demands far outstripped the supply offered by central banks, indicating that firms were keeping a tight grip on cash as they assessed the damage.

US interbank interest rates spiked to three times the Federal Reserve's target of two percent, and calls grew for additional interest rate cuts.

"This weekend's events raise the probability of one or several major central banks cutting interest rates, possibly as early as this week, and perhaps in a concerted action," Morgan Stanley economist Joachim Fels wrote in a note to clients.

The US central bank's interest rate-setting committee meets today, and trading in rate futures markets showed that investors think another reduction is possible then.

Although the financial pain was acute yesterday, Harvard's Rogoff said the Federal Reserve and Treasury Department were right to deny taxpayer money to salvage Lehman Brothers.

"The government's actions may lead to a deeper recession but much shorter because they're letting the private sector work this out," Rogoff said. "It takes a lot of guts a few months before an election to let this happen, but it is absolutely the right thing to do."

The depth of the downturn depends largely on how banks behave in the coming weeks. Douglas Elmendorf, an economist with the Brookings Institution, said it will be several days before markets settle down enough to give a clear signal on the status of lending conditions.

If banks manage to unwind their transactions with Lehman this week, the effect on corporate and consumer lending may be manageable. If they cannot, and losses mount, that will clearly restrict lending and lead to higher borrowing costs....

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