Trichet warns banks on risk of addiction to cheap cash
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Saturday November 21 2009
Banks risk becoming addicted to cheap central bank cash used to fight the financial crisis and must prepare for its eventual withdrawal, the head of the European Central Bank (ECB) warned at a Frankfurt banking conference yesterday.
Financiers from the head of Deutsche Bank to the president of Germany's Bundesbank urged bankers and regulators to learn the lessons of the global financial crisis and drive through changes to prevent future breakdowns.
ECB policymakers met on Thursday for mid-month discussions ahead of a decision about an exit strategy due at their December 3 policy meeting.
"Emergency treatment and strong medicines are sometimes necessary. But, if their use is prolonged, they can lead to dependence and even addiction," ECB president Jean-Claude Trichet told a Euro Finance Week event.
"Eventually, the administration of painkillers must be stopped if patients are to get back on their own two feet," he said, also warning that the ECB would have to whip away support "promptly and unequivocally," if inflation flared.
Bundesbank president Axel Weber said regulators must be resolute about pressing ahead with reform and reject criticism for perceived over-regulation as markets start recovering.
"We don't give a damn what anyone says, because we will just implement it," he said. "It is very important for us not to fall prey to influences on the way up or down.
Stubborn
"We have to turn very stubborn ... and make the system more resilient," said Mr Weber, who is also on the ECB's policy-making Governing Council.
The worst financial crisis in 80 years has sparked calls for a radical overhaul of banking supervision, which is still country-based despite cross-border groups dominating the sector.
Politicians, shareholders and regulators have sought someone to blame for the breakdown that led governments to pour colossal public funds into stimulus packages and bank bailouts.
Much of the criticism has been focused on bankers.
Deutsche Bank chief executive Josef Ackermann told the conference that all parties need to learn from the crisis to help prevent future financial bubbles. (Reuters)
Irish Independent
