PARIS (MNI) – Hasty and excessive regulatory reform could hamstring
banks and throttle their lending to the real economy, ECB Governing
Council member Christian Noyer warned Wednesday.
There is a “delicate balance” between reinforcing banking
regulation and assuring economic growth, the governor of the Bank of
France told the Finance committee of the National Assembly.
The goal must be to discourage banks from taking excessive risks,
while encouraging them to take all the risks necessary to finance the
real economy, he said. “We must find a good balance for regulation.”
Noyer suggested it would be illusory and counterproductive to try
to eliminate the practice of securitization, at least in the short term.
The central banker said he was “very mistrustful” of the notion of
a banking insurance system financed through taxes, since this could
encourage risk-taking and “institutional moral hazard.”
Instead, a system of counter-cyclical provisions could be imposed
to oblige banks to put reserves aside in boom periods to cover eventual
losses when the economic cycle turns, he said, citing Spain as an
example.
Another way to counter moral hazard would be for governments which
have become share-holders in banks through public bail-out schemes to
dismantle oversized institutions, he ventured.
Noyer faulted hedge funds for using cheap central bank funds to
finance their speculative practices. “The American intuition that there
must be a barrier for this type of operation is a good intuition,” he
said.
Not surprisingly, the central banker resolutely seconded the
rejection by ECB President Jean-Claude Trichet and Federal Reserve
Chairman Ben Bernanke of IMF chief economist Oliver Blanchard’s argument
that raising central banks’ inflation targets could help resolve the
crisis.
This would simply be “the best way” to “destroy growth,” Noyer
warned.
-Paris bureau tel.: +331 4271 5540; email: stephen@marketnews.com
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