The International Monetary Fund is proposing to raise its lending capacity by $500 billion to insulate the global economy against any worsening of Europe's debt crisis, according to a person familiar with the talks.

The Washington-based lender currently has about $385 billion available to lend and wants to lift that to $885 billion after identifying the potential for a $1 trillion global financing gap in the next two years, the person said. To incorporate a cash buffer, that means asking its membership for $600 billion.

IMF Managing Director Christine Lagarde said yesterday her staff are studying options to increase the fund's war chest. While euro-region nations have already pledged to contribute 150 billion euros ($192 billion), the U.S. has said it has no plans to make new bilateral loans and G-20 leaders ended last year at odds over the issue.