FRANKFURT (MNI) – The European Central Bank will be actively
involved in addressing the remaining challenges to improve financial
stability, European Central Bank Executive Board member Gertrude
Tumpel-Gugerell said on Monday.

The central bank will “will continue to play an active role in
safeguarding financial stability in Europe” through its involvement in
the European Systemic Risk Board, Tumpel-Gugerell, according to a text
of her remarks provided by the ECB.

Speaking at the same conference earlier Monday, ECB President
Trichet emphasized that the new ESRB will neither replace key functions
of central banks and supervisors nor change the ECB’s mandate in
any way.

Although “significant progress” has been made in the strengthening
of supervision, more challenges lie ahead, Tumpel-Gugerell warned.

“Looking further ahead, important challenges remain to improve
banking sector stability,” she said.

In particular, she said that “banks’ business models need to become
more sustainable” and oriented towards the medium to longer term. Banks
must also “undergo a serious reform of their corporate governance and
compensation schemes” and strengthen their risk management practices,
Tumpel-Gugerell said.

In regulating markets and infrastructures, policymakers must
strive for more transparency in financial markets.

“The activities in the shadow banking sector and the
over-the-counter business have contributed tremendously to the creation
of uncertainties and opaque transmission channels for risks. Therefore,
a central goal for any future regulatory action should be the
improvement of market transparency,” Tumpel-Gugerell said.

In this context, she singled out the need for a central counter
party for over-the-counter derivatives and welcomed the European
Commission’s proposal to increase transparency for short-selling
activities.

Tumpel-Gugerell said the crisis has shown that ensuring the
soundness of individual institutions is not sufficient and future
policies must aim to minimize the transmission risks between
institutions and markets.

“The crisis has shown that the exclusive focus on banks has proven
insufficient as contagion has also occurred across different types of
financial intermediaries, such as insurance companies and money market
funds. Therefore, looking forward it will be crucial that the cross
border cooperation between authorities be further strengthened,” she
said.

–Frankfurt newsroom, +49-69-720-142; frankfurt@marketnews.com

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