For the financial system there is a need for more stringent regulation which must impose a much more stability-oriented perspective, Trichet said. Incentives and rules have to be introduced to prevent focussing excessively on short-term returns.
While the primary task was to resolve the immediate crisis, governments and the private sector also needed to tackle the root causes and avoid laying the ground for further crises in the future, ECB President Jean-Claude said before the Annual Joint Parliamentary Meeting in Brussels. “We should not go back to the status quo ante, but should focus on medium term stability,” he said.
“For the financial system there is a need for more stringent regulation”, Trichet said “Such regulation needs to prevent a recurrence of the excesses witnessed in financial markets and must impose a much more stability-oriented perspective”, he said.
Referring to the FSF proposals there are at least three policy areas where change is particularly warranted, he said. Next to increasing transparency and dampening pro-cyclical tendencies, incentives and rules have to be introduced to prevent the financial sector from focussing excessively on short-term returns.
As regards the global financial architecture, international organisations and fora should play an important role in convincing countries to adopt stability-oriented policies and ensure necessary corrective measures where required. And international institutions should, in turn, also adapt.
In particular, the connection between macro-economic and financial stability needs to be more comprehensively addressed, Trichet explained and called for closer collaboration between the IMF and the FSF.
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