Financial system still far from healthy: IMF chief

The global financial system is still far from sound and the toxic debt blighting bank balance sheets is undermining government recovery efforts, the head of the International Monetary Fund warned yesterday.

"The whole world's financial system is not yet healthy and thus recovery effects are not sufficiently strong," Dominique Strauss-Kahn, Managing Director of the International Monetary Fund, told France Inter radio.

"We must finish the job of cleansing bank balance sheets," he insisted, complaining that some banks and national regulators were not working quickly enough to identify and isolate the bad credit which provoked the collapse.

"I am worried, because the plans that are being put in place are headed in the right direction but do not go far enough," he warned, calling for more co-ordination between governments struggling with national recovery plans.

Some countries have partly or wholly nationalised banks hit by the credit crisis, others have pushed through rapid mergers and some experts have said so-called "bad banks" must be established to absorb toxic debt.

Many commentators fear, however, that billions of dollars in unpayable loans are still lurking on institutions' books, disguised in a thicket of complex financial instruments and undermining trust in the credit market.

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