London (MNI) – It will be very challenging to maintain momentum
behind financial sector reforms, but it is indispensable to create sound
foundations for the system, European Central Bank board member Jose
Manuel Gonzalez-Paramo said in a speech Monday.

Gonzalez-Paramo outlined the multi-track reform of the financial
architecture that is taking place, but he warned that “battle fatigue”
could set in and the reform process could stall.

“It will be very challenging to keep momentum in the reform agenda
and to keep the activities of the many building sites on track as battle
fatigue inevitably settles in. But the crisis has also painfully
demonstrated that sound foundations are indispensable to withstand the
occasional blows that hit the financial system,” Paramo said.

He highlighted four key areas of financial architecture reform in
the wake of the financial crisis.

They are: the establishment of the European Systemic Risk Board
or ESRB, responsible for macro-prudential supervision in the EU; the
question of how policymakers are dealing with systemically important
institutions; procyclicality and the interplay between the financial
sector and the real economy; and the mandate of central banks in
financial stability.

Gonzalez-Paramo looked at key elements within this reform agenda:
the adoption of high-quality capital and liquidity standards for banks;
measures to reduce the financial system’s procyclicality; the
introduction of a regulatory framework for systemically important
financial institutions; the regulation of credit rating agencies and
hedge funds, improving OTC derivatives markets and sound compensation
practices that support financial stability.

He said a key objective of the reform package is “to enable
financial
institutions to better withstand the adverse effects of economic
shocks.”

He warned, however, that a balance has to be struck so reform does
not harm the broader economy.

“It is important that the right balance is struck between enhancing
banking stability and maintaining a stable provision of credit to the
economy,” Gonzalez-Paramo said.

The speech, in Bilbao, contained no comments on the current
macroeconomic situation.

–London newsroom tel. +44-207 862 7491 e-mail:
ukeditorial@marketnews.com

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