(RTTNews) - It is too early to declare that the global crisis is over and the current non-standard monetary policy measures will have to be progressively phased out, European Central Bank President Jean-Claude Trichet reiterated Friday.

"The mood in the financial system is one of relief," Trichet said in a speech at the 19th Frankfurt European Banking Congress. "But as of today, it is too early to declare the crisis over."

He said banks must strengthen their balance sheets and it is essential to become self-reliant and be able to stand on their own feet. Trichet made it clear that authorities cannot manage the financial sector or provide exceptional support indefinitely. He warned that use of such measures may lead to addiction.

"Emergency treatment and strong medicines are sometimes necessary," he said. "But, if their use is prolonged, they can lead to dependence and even addiction."

Banks should increase lending once loan demand picks up. Trichet said the magnitude of public support has been provided for this purpose. In addition, they must contain compensation and bonuses.
"Our 330 million fellow citizens in the euro area will surely not tolerate a relapse into excessive risk-taking at the taxpayer's expense," the central bank chief noted. "Therefore, the financial sector has to secure its future in a responsible and sustainable way."

He repeated that unconventional measures, introduced to counter global financial crisis by ensuring sufficient liquidity in the region's financial system, would be removed progressively. "Enhanced credit support is not for eternity," he said. "Financial institutions must prepare themselves for an eventual withdrawal, which, as I have said on behalf of the Governing Council, will be timely and gradual."

As a first step of its exiting strategy, the ECB is expected to end its 12-month unlimited liquidity supply for banks in December, the third and probably the final offer. The rationale for exit from these measures is the inverse of the rationale for their implementation, he said, adding that exceptional measures will have to be unwound when the situation normalizes and the rationale for the measures fades away.

Moreover, Trichet said the ECB's exit strategy is linked with its primary objective of price stability. Hence, any non-standard measure whose continuation would pose a threat to the achievement of price stability must be undone promptly and unequivocally.

Elsewhere, ECB Governing Council member Axel Weber reportedly said the central bank should not use interest rates as a tool to address asset price developments. Instead, additional regulatory tools would help the central bank to prevent market exaggerations in the future.

 1   2   Next Page