The International Monetary Fund says the stability of the global financial system has weakened, hit mainly by debt problems in Europe.
The IMF says European banks remain under funding pressures, and are heavy lenders to the region's governments, which are struggling under a mountain of debt.
IMF Monetary and Capital Markets Department director Jose Vinals says change is gradually underway to strengthen the global banking system.
But he says banks need to raise capital, and governments need to rein in their deficits to underpin the tepid global recovery.
Mr Vinals says the emerging markets of Latin America and Asia are not immune. Both risk being destablised by large inflows of capital as rich world investors switch into these higher performing markets. he says.
