23 February 2009

Trichet – ECB ready to play a role in new financial system

The current crisis is a loud and clear call to extend regulation and oversight to all systemically important institutions and markets, notably to hedge funds, credit rating agencies and OTC derivatives markets, Trichet said.

The EU has the opportunity to adapt the supervisory framework to the new financial landscape, reflecting the considerable increase in European financial integration that we have observed in recent years, ECB President Jean-Claude Trichet said in his address to the CESR conference in Paris. “The ECB/Eurosystem stands ready to accept any additional responsibilities that the Member States may wish to assign to us, in accordance with the Treaty.”

 

“The current crisis is a loud and clear call to extend regulation and oversight to all systemically important institutions – notably hedge funds and credit rating agencies – as well as all systemically important markets – in particular the OTC derivatives market”, Trichet said.

 

The new financial system should foster sustainability, strengthen resilience and be holistic in its reach, he outlined.

 

We need to be more resolute in preventing the build-up of risks, Trichet said and welcomed the proposals to reinforce macro-prudential oversight internationally.

 

“We have to realise that our financial system as a whole, including its non-regulated and non-listed entities, was neither strong nor efficient”, Trichet said. “It did not allocate capital properly, and it did not manage risks well”.

 

The resilience to shocks has to be improved, he said. However, he also warned not to introduce “pro-cyclical” changes in the regulatory framework at a time when we are already observing a market-driven deleveraging of the first magnitude. “Banks should not be requested to hold more capital than is required by the existing capital framework”, he said.

 

Macro-prudential supervision by central banks needs to be strengthened, Trichet outlined. There is a need for a higher degree of transparency for systemically relevant financial institutions and markets, he said and welcomed discussions on standardized reference data approaches. Also, the co-operation between central banks and supervisors needs to be enhanced.

 

“The ECB/Eurosystem stands ready to perform additional macro-prudential supervisory tasks”, Trichet said.

 

Full speech

 

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