WASHINGTON - Global finance chiefs pointed to glimmers of hope that a deep recession might be easing but warned ahead of Friday meetings that they must clean up bank balance sheets to pave the way for recovery.

If we do not fix the banks, we will not fix the economy, British finance minister Alistair Darling said. He added that the Group of Seven nations and larger G20 club must also follow through on pledges to fatten resources for key global lenders.

U.S. Treasury Secretary Timothy Geithner, who hosts an afternoon G7 session and a G20 gathering in the evening, wrote in the Financial Times that there were encouraging signs that the global economic downturn may be slackening but cautioned it was no time to let up on efforts to boost revival.

The G20 nations must follow through on their commitment to deliver the fiscal, monetary and financial policies necessary to restore growth, Geithner said, underlining the fact that these meetings are largely to flesh out promises made at a G20 session of political chiefs in London on April 2.

Those promises include adding hundreds of billions in fresh financing for the International Monetary Fund, which is holding semi-annual meetings this weekend with the World Bank, and freeing up more money for bolstering global trade.

It is not yet clear, however, where all those funds will come from, and the IMF is pressing officials from around the world to contribute or increase money already pledged.

The G7 developed nations are expected to issue a communique around 4:30 p.m. (2030 GMT) but no statement is expected from the later meeting of the G20.

The G7 comprises the United States, Britain, Canada, France, Germany, Italy and Japan, while the G20 includes those and a key group of emerging economies, like China and India.

DEEP CONTRACTION

Overlaying the other woes faced by the global economy, which the IMF says will shrink by 1.3 percent this year, is the issue of mounting bad debts on bank books that are choking the flow of credit to the world economy.

IMF Managing Director Dominique Strauss-Kahn said the mission of today's meetings must be to add urgency to the drive to clean-up balance sheets so banks can resume their normal role as lenders -- an effort the IMF says is lagging.

The point on which the IMF is seeking major efforts is on the clean-up of the banks so that credit gets flowing again, credit for companies, credit for investments and credit for private citizens, he told French reporters. I wouldn't say nothing has been done but it's not going fast enough.

In the United States, 19 of the largest banks have undergone stress tests to assess whether the government will have pump more money into them. A paper setting out the variables used will be released on Friday, but the results themselves won't be issued until May 4.

GO-GO GOES BUST

The problem of toxic assets is global, thanks in part to the U.S. practice of bundling mortgage loans -- good and bad -- into securities that were sold worldwide during the go-go banking years that led to the U.S. housing crash.

The IMF estimated this week that credit losses globally could reach $4.1 trillion, leaving gaping holes in balance sheets that must be filled either by private or public money. Banks worldwide have so far raised about $900 billion in capital, about half of it through government rescue loans.

The Fund thinks U.S. banks face further write-downs of $550 billion over the next two years, while the euro zone needs to write down $750 billion and Britain $200 billion.

Some G7 members are growing frustrated that there has been less action than talk despite a series of ministerial meetings since the financial crisis first erupted in August 2007.

There has not been as much progress as we had expected in January and that has meant our recession is going to last another quarter longer, and the recovery is going to be a bit more muted, Bank of Canada Governor Mark Carney said on Thursday.

Germany Japan Canada United kingdom