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The main factor that I would identify as underlying the turmoil is the broad-based under-appreciation of risk which has been observed across financial institutions, across markets and across economies, ECB President Jean-Claude Trichet said in Paris. And an even more astounding aspect was the generalised under-appreciation of the quantity of risk borne by market participants, he added.
The main lesson I believe we need to draw is therefore for the financial sector to establish a much more rigorous identification, assessment and handling of risk.
The events call for a set of ambitious reforms aiming to introduce, re-introduce and re-inforce if need be counter-cyclical mechanisms and the shock-absorbers in the financial system, he said. The corresponding reforms must be systematic without giving the least privilege to any entity and without focusing attention either on a few scapegoats.
Finally, Trichet noted that economic growth in the global economy and in Europe will be substantially lower than projected in early December. “However, I see … reasons to have confidence in a recovery of the global economy and the industrialised economies over the medium term, after the trying year of 2009”, the ECB President said.