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ECB's Draghi: Banking Sector To Go Through Consolidation

NICE, France -(Dow Jones)- The international banking sector is bound to go through consolidation in the next months, as banks join forces to survive the financial crisis, Mario Draghi, a member of the European Central Bank governing council and governor of the Bank of Italy, said Saturday.

"There'll be a streak of consolidations in the international banking sector," Draghi said at a press conference after an EcoFin meeting in Nice. "That's a first evaluation of what's going to happen in the next months."

Banks the world over, strained by subprime-originated losses, may struggle to raise additional capital as stock markets deteriorate and some of their traditional income sources dry up. The economic slowdown is also affecting the banks' balance sheets, Draghi said.

Still, banks in the 15 countries that share the euro "seem to be hurt by the current crisis to a lesser extent" than their counterparts on other countries, Draghi said.

He forecast, for the future, a reformed financial system that will need to operate with less debt and more capital, cutting its exposure to the "perverse incentives" that caused the present crisis.

Draghi joined other ECB board members, such as Bank of France's Christian Noyer, in saying that the credit market in the euro zone is still working properly.

Draghi is chairman of Financial Stability Forum, which brings together central bankers and regulators from the Group of Seven and other leading economies.

Draghi estimated that banks have globally suffered losses of almost $500 billion as a result of the financial turmoil and have raised $350 billion in new capital to date.

Draghi said it is "premature" to say that the euro zone's annual rate of inflation has peaked. With gasoline prices declining, the euro zone's inflation rate fell to 3.8% in August from 4.0% in July.

However, he said that if the euro's exchange rate stays around current levels, and oil prices don't rise, he is optimistic about the outlook for the euro zone in 2009.

-By Gabriele Parussini, Dow Jones Newswires; +33 1 40171740; gabriele.parussini@dowjones.com.

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(END) Dow Jones Newswires

September 13, 2008 09:00 ET (13:00 GMT)


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