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13 March 2012

FT: Bundesbank steps up pressure on Draghi


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Germany's Bundesbank has stepped up pressure on Mario Draghi, European Central Bank president, to plan the withdrawal of exceptional help for eurozone banks, warning of potentially dangerous side effects for the region's financial system.


Jens Weidmann, Bundesbank president, said that ECB governing council members agreed risks taken by the bank must be subject to continuous review. “That does not mean all crisis measures must be immediately withdrawn, but that we as central bankers have an idea how we will organise and implement an ‘exit strategy’”, he said.

His comments highlighted German concern at potentially damaging spillover effects from the more than €1 trillion in three-year loans the ECB has provided to eurozone banks in recent months. Mr Draghi has signalled that the three-year liquidity offers are unlikely to be repeated – but the ECB continues to meet in full banks’ demands for loans lasting up to three months.

Mr Weidmann warned the ECB’s cheap liquidity could lead banks to adopt unsustainable business models and governments slowing down the pace of fiscal and structural reforms.

The Bundesbank reported its profits had fallen from €2.2 billion in 2010 to just €643 million last year after substantially increasing reserves set aside to cover risks associated with the ECB’s crisis-fighting measures.

Full article (FT subscription required)



© Financial Times


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