BASEL - THE head of the international body tasked with restoring stability to the world's financial system said on Saturday that the system had improved significantly but was 'not out of the woods yet'.

'We are more or less back at what we were before Lehman, but we are not back to before the crisis,' Financial Stability Board chair and Italian central bank chief Mario Draghi said.

He was referring to the sudden collapse of US banking giant Lehman Brothers last September, which plunged financial markets and the banking and credit system into turmoil.

'An improvement yes, out of the woods, not yet,' he added after the FSB's inaugural meeting, underlining renewed confidence.

Mr Draghi pointed to two 'positive signs": the way US banks in particular had managed to raise US$10 billion (S$14.6 billion) in private capital recently, and the strength of corporate bond issuance.

However, he also highlighted the unfinished restructuring of banks and the fragile credit channels among the 'uncertainties'.

These features have be restored in order to 'sustain the recovery'.

'When the time will come, we'll have to try to coordinate our exit strategies,' Mr Draghi told journalists.

But he emphasised that the financial and economic climate was still too fragile to unwind the cuts in interest rates, stimulus plans and other measures taken to combat the slump and credit squeeze.

'You have to have the bank system repaired before you run a tight monetary policy,' the FSB chief pointed out.

The FSB is meant to a broadened and strengthened Financial Stability Forum, bringing together central banks, the IMF, World Bank, national regulators and governments, tasked with permanent oversight of the financial system.

It is now expanded to include all those from the Group of 20 major developed and developing countries, as well as Spain, Switzerland and the European Commission - in all involving at least 24 states. -- AFP