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“I consider that the fragility of the global financial system, by which I mean its lack of sufficient resilience that has been revealed in the course of the present episode of turbulences, is not acceptable”, ECB President Trichet said in his speech before the EP ECON Committee.
“We must draw all the lessons of the crisis, without any complacency, considering that all the elements of the system must be significantly improved: the quality of risk management, liquidity management and the overall resilience of private institutions, the transparency of the financial markets, and the clarity of financial instruments.”
What we now need is strategic lucidity and, where appropriate, a great deal of political energy to counter considerable vested interests, Trichet said. However, we also need sound macroeconomic policies that avoid the creation of the large domestic and external imbalances, he underlined.
With regard to the institutional set-up, Trichet favours a strengthening of the informal groupings, in particular the FSF and the G20. “The FSF is unique in that it links all the authorities and institutions that have a systemic influence on financial markets, which are very largely decentralised and – for many of them – independent from the political sphere”, Trichet said.
Also, the governance of the international financial institutions, particularly the IMF but also the World Bank, should become more effective and representative, he said.
“The financial crisis has heightened the importance of addressing issues relating to financial supervision in a comprehensive and coordinated manner, both globally and at the European level”, Trichet said and underlined the need to analyse long-term solutions to the structure of supervision. “To that end, the proposals which will be put forward by the High-Level Group chaired by Jacques de Larosière will represent an important contribution to the policy discussions.”
“Reflections have started on the specific role that could be played by the ECB and its Governing Council”, he said. However, the Governing Council has not yet taken a position on this topic.
The Full discussion in Parliament is available here.