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C.banks can't repair crisis damage alone-ECB official

Tue, Nov 11 2008, 14:20 GMT
http://www.afxnews.com

LJUBLJANA, Nov 11 (Reuters) - No amount of central bank action on its own can repair the damage that the financial crisis has inflicted on markets, a European Central Bank official said in a report published on Tuesday.

Commercial banks needed to look at their own actions and improve transparency to overcome persistent problems, Michel Stubbe, who heads the ECB's market operations analysis division, wrote in the Slovenian magazine Bancni Vestnik.

"Whichever the scope and size of the central bank measures, they will, by themselves, not be sufficient to restore the smooth functioning of financial markets," he said.

Increased cooperation among central banks and the ECB's wide-ranging lending operations had proved effective during the latest phase of the crisis, Stubbe said. But banks should rapidly implement industry and authorities' recommendations for tougher supervision and accounting standards plus better risk monitoring.

His calls were mirrored by ECB Governing Council member Marko Kranjec in a separate article in the magazine.

"The sophistication of financial products was mistakenly (equated) with quality," Kranjec said. "In addition, accounting rules with their emphasis on fair-value accounting have contributed to deepening of the crisis and have produced losses in many prestigious international banks."

Kranjec, who also heads the Slovenian central bank, warned that it was too early to predict what the banking sector would look like once the financial crisis was over. "It is premature, at this juncture, to predict the future landscape of the banking sector, and many questions remain unanswered," he said.

He urged authorities to take a tougher line on risk and banking supervision, and called for clearer and simpler valuation methods and less reliance on rating agencies.

The global financial crisis was a result of banks switching from traditional deposit-based funding to more volatile market-based wholesale sources, he said. Kranjec blamed investors for blindly relying on ratings from credit agencies, which he said were meaningless in exceptional circumstances.

(Reporting by Marja Novak, Edited by David Stamp) Keywords: ECB BANKING/

(marja.novak@reuters.com; 386-1-47-00-545; Reuters Messaging: marja.novak.reuters.com@reuters.net)

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