WASHINGTON: The International Monetary Fund warned yesterday that debt-ridden banks were pushing the global financial system to the brink of meltdown and rich nations had so far failed to restore confidence.

The United States appealed for patience as world leaders raced to stabilise financial markets and avert the deepest global recession in decades, but the IMF said more steps would be needed in the coming months.

"Intensifying solvency concerns about a number of the largest US-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown," IMF chief Dominique Strauss-Kahn said.

President George W. Bush huddled with Group of Seven economic chiefs and officials from the IMF and World Bank, and said top industrial nations grasped the gravity of the crisis and would work together to solve it.

"I'm confident that the world's major economies can overcome the challenges we face," Bush said, adding that Washington was working as fast as possible to implement a US$700 billion (RM2,380 billion) bailout package approved a week ago.
"The benefits will not be realised overnight, but as these actions take effect, they will help restore stability to our markets and confidence to our financial institutions."

Treasury secretary Henry Paulson said risks to the global economy were "the most serious and challenging in recent memory".

The world's rich nations vowed on Friday to take all necessary steps to unfreeze credit markets and ensure banks could raise money but they offered no specifics on a collective course of action to avert the recession threat.

In a surprisingly brief statement after a 31/2 hour meeting, the G7 stopped short of backing a British plan to guarantee lending between banks, something many on Wall Street saw as vital to end growing market panic.

Kenneth Rogoff, a Harvard University professor and former IMF chief economist, said the G7 would have been better served adopting some version of the British plan so that banks would feel confident enough to loosen their grip on lending.

"Saying that they'll take all steps necessary leaves hanging the question of whether they know what is best and necessary," he said.

Britain's rescue plan, launched last week, makes available STG50 billion (RM297 billion) of taxpayers' money for injection into its banks and, crucially, to underwrite interbank lending which has all but frozen around the globe.

The US government was scrambling to put together a plan to buy direct stakes in American banks to shore up balance sheets riddled with heavy credit losses from the 14-month crisis that began with failing US mortgage loans.

Paulson said it was "naive" to think that the G7 would endorse a one-size-fits-all approach to ending the credit crisis because there were major differences between the countries and their financial systems.

As Paulson and his fellow finance ministers insisted that they were working as fast as possible, there were signs the economy was credit-starved and deteriorating fast.



Paulson said the government would buy shares of financial institutions if necessary to halt market turmoil that has wiped out trillions of dollars of wealth.

"We're going to do it as we can do it in a proper way that will be effective. Trust me, we're not wasting time, we're working round the clock," Paulson said late on Friday after the G7 meeting.

Earlier on Friday, stock prices hurtled downward in the US, Europe and Asia.

A sign of how bad things have become: A drop of 128 points in the Dow Jones industrials was greeted with sighs of relief after the index had plummeted much further on previous days.

The week ended as the Dow's worst ever, with the index down an incredible 40.3 per cent since its record close on Oct 9 last year.

Investors suffered a paper loss of US$2.4 trillion for the week, as measured by the Dow Jones Wilshire 5000 index, and for the past year the losses have totalled US$8.4 trillion.

It was even worse on Friday. Britain's FTSE index ended below the 4,000 level for the first time in five years. Germany's DAX fell seven per cent and France's CAC-40 finished down 7.7 per cent. Japan's benchmark Nikkei 225 index fell 9.6 per cent, also hitting a five-year low. For the week, the Nikkei lost nearly a quarter of its value. Russia's market never even opened. -- Agencies