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Monetary Dialogue with ECB President Trichet
ECB President Trichet outlined five points of particular importance to make the financial system more resilient in the future. The risk management systems in all areas including in securitisation or liquidity risk has to be improved, he said and welcomed the current revision of the Capital Requirements Directive.
The compulsory establishment of colleges of supervisors for all cross-border banks are particularly important, he said. “As regards the future I am sure that substantial improvements could be envisaged, in particular by the High-Level Group set up by the Commission and which is gathering eminent personalities.”
Further issues include avoiding excessive short-termism, including specific guidance by supervisors on internal compensation schemes. Enhanced transparency ‘in all respects’ and in ‘all financial institutions’ is also critical. In particular, Trichet welcomed the establishment of a central counterparty clearing for the CDS markets. Finally, potential pro-cyclical effects have to be prevented which includes those effects resulting from prudential rules and accounting standards.
Discussion:
José Manuel Garcia-Margallo (EPP/ES) and John Purvis (EPP/UK) both asked about the ECB's policy on the collateral it accepted in return for providing liquidity to commercial banks. Mr Trichet said the ECB needed both to allow banks to refinance themselves appropriately, and to stick to cautious risk management as regarded its own lending. The ECB had a ‘systematic methodology to assess values’ of collateral and the size of ‘haircut’ to apply.
Asked by Donata Gottardi (PES/IT) and Elisa Ferreira (PES/PT) about the impact on the real economy, Trichet said that the ECB aims at permitting the banking sector to function as normally as possible, financing the market economy. However, we could not simultaneously criticise banks for failing to look at the risks they were running in the past and ask them to ignore risk now, he said.
“Even without the financial crisis we would have had a slowing down in the economy after long years of very active growth at the global level and after the oil shocks that we had to cope with”, Trichet said.
Responding to Wolf Klinz (ALDE/DE) on the fiscal stimulus packages Mr Trichet said Member States should do what was appropriate for them. “If you don't do that, you can find your there are higher costs for financing and you are not in a better position”, he said.
On the idea to issue super-bonds to finance the stimulus packages Trichet said the ECB is “not in favour of issuing securities, treasuries that will be joint and several”.
Deposit Guarantee Schemes
ECON Committee approved the increase in bank deposit guarantee to €100,000 endorsing the Commission proposal. The Committee also proposed that holders be given faster access to their deposits in emergencies and that a mechanism be established for cross-border co-operation in the event of another economic crisis.
The Committee, however, asks for a Commission impact assessment to be ready by April 2009 to proof it is financially viable for all Member States. ECON also agreed to reduce the payout period, in the event of deposits being unavailable, from three months to 14 days and called for a payment of at least €1,000 to be made available to the depositor for emergency needs within three days.
MEPs asked the European Commission to propose, by the end of 2009, a series of measures and procedures to ensure co-ordination among all Member States in the event of another cross-border financial crisis. This proposal should include provisions for a more effective early warning system.
Member States will be required to bring it into force by