Short-termism, transparency, and pro-cyclicality are on the reform agenda, Trichet said. Also, large domestic and external imbalances have to be reduced in systemically important economies.
Short-termism, transparency, and pro-cyclicality are the three principal fundamental elements of the reform agenda, the ECB President said.
The focus on short-term returns can lead to the misjudgement of underlying risk and encourage excessive risk-taking. “It is therefore essential to establish the right incentives for market participants, including the use of appropriate internal compensation schemes”, Trichet said.
More transparency can prevents markets from over-reacting and reduce the scope for ‘herding behaviour’ and contagion. Regulators need to tighten up disclosure requirements for markets in which structured financial products are traded and strengthen reporting requirements for unregulated institutions which are relevant for systemic stability, the ECB President noted.
It is also important to reduce the pro-cyclicality of the financial system. Elements of financial regulation, such as capital requirements, provisioning rules and valuation standards, can act as contributing factors in this regard, he outlined.
Also, macro-economic policies have to be discussed. “Specifically, we also need to foster greater discipline in the macro-economic policy-making of all participants in the global economy”, Trichet said. “Large domestic and external imbalances have to be reduced in systemically important economies”, he underlined.
Full speech
© ECB - European Central Bank
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article