ECB’s Trichet says banks must own up to losses


Global financial markets are in a period of high uncertainty that requires banks come clean with the extent of their losses as quickly as possible, European Central Bank President Jean-Claude Trichet said on Monday.

Trichet emphasized the need for global coordinated action, welcoming recommendations from the Group of Seven (G7) nations over the weekend that called for greater transparency and more pro-active regulatory oversight. “The present turbulences have, once more, demonstrated that opacity as regards markets, financial instruments and real situations of financial institutions is a recipe for catastrophe,” Trichet told a conference at New York University School of Law. “Financial institutions should fully and promptly disclose their risk exposures, write-downs and fair-value estimates for complex and illiquid instruments in their upcoming mid-year reporting,” he said. Trichet also called for more transparency on complex financial instruments such as credit derivatives.

The speech was unusual for the absence of any mention of inflation, the core of the ECB’s mandate and a constant preoccupation for Trichet; although when pressed on the issue he did say it was “certainly a problem.” The ECB has been very active in pumping the financial system with liquidity in an effort to get frozen credit markets moving again. But unlike the US Federal Reserve, it has been unwilling to slash interest rates for fear that price increases might get out of control.

Trichet said the seeds of the current crisis, which began last August, were sown well before the troubles in the US mortgage market began spreading elsewhere. He criticized what he called the “shadow banking system,” meaning non-bank financial institutions, for taking risks based on the false premise that asset prices would continue rising indefinitely. A lack of transparency in markets has led to herd behavior and indiscriminate risk-aversion, he added. In an effort to address this, Trichet called for the rapid implementation of the G7’s proposals. Longer-term, he said, better risk management and stress-testing, as well as improved credit ratings for structured products, are also needed. “Expeditious and effective implementation is of the essence,” he said.

Pressed by reporters on the differing approaches of the Federal Reverse and the ECB, he said the two central banks face different circumstances, but that their missions had much in common. “A solid anchoring of inflation expectations is of the essence,” he said. “That’s our responsibility as central bankers and I trust that we all have that in mind when we act.” The Fed has cut interest rates sharply since the start of the credit crisis, bringing its benchmark rate down to 2.25% from 5.25%. The ECB, in contrast, has held its policy rate steady at 4%. (Reuters)

Alteo Revenue Down 26% in Q1 Green Energy

Alteo Revenue Down 26% in Q1

Gov't to Call HUF 75 bln Tender to Support Innovation by SME... Government

Gov't to Call HUF 75 bln Tender to Support Innovation by SME...

HUF 100 mln for NGOs Dealing With Diabetes Science

HUF 100 mln for NGOs Dealing With Diabetes

1990s Hungary Inspires Debut Novel ‘Ilona Gets a Phone’ History

1990s Hungary Inspires Debut Novel ‘Ilona Gets a Phone’


Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.