The International Monetary Fund seal at the IMF in Washington, D.C.
The International Monetary Fund seal at the IMF in Washington, D.C. - 
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BILL RADKE: More than two years after the shock to the world financial system, that system is still holding back a world recovery. That's the conclusion of a new report from the International Monetary Fund.

Here's the BBC's Matthew Davies.

MATTHEW DAVIES: The IMF is worried about the type of financial instability we've seen in Europe recently, where high public debt levels and weak banks remain huge problems.

Jose Vinals is a senior official at the IMF. He says things will gradually improve, but the situation is still fragile.

JOSE VINALS: Confidence in financial markets is not yet fully back even after 3 years since the start of the crisis. Because the financial system is still perceived in a number of cases as not having been fully repaired and reformed.

But Vinals has been impressed with the action taken by some of Europe's most vulnerable countries. The report praises both Greece and Ireland in particular, for taking forceful and decisive steps to tackle their budget deficits.

On the other hand, the IMF is concerned about how rapidly money is flowing into developing economies. Low interest rates in rich countries have forced investors to look for better returns in Asia and Latin America. And according to the IMF, if the flood of money is suddenly reversed it could cause big problems for their financial systems.

In London, I'm the BBC's Matthew Davies for Marketplace.