PARIS (MNI) – Financial regulatory reform is key to overcoming the
global imbalances that were at the core of the economic crisis, European
Central Bank Governing Council member Christian Noyer said Tuesday.

“Never before has the word ‘finance’ been so crucial in the policy
agenda,” the governor of the Bank of France said at a Europlace
conference here.

Global imbalances have started to narrow in the wake of the
financial crisis, but this has largely been due to cyclical factors,
Noyer observed. Hence, “the issue remains.”

The G20 road map aims to assure a transition to “strong,
sustainable and balanced growth,” which means sustainable public
finances, price stability along with social and environmental goals,
Noyer said.

“Countries facing serious fiscal challenges need in particular to
accelerate the pace of fiscal consolidation, while countries that have
the capacity should expand domestic sources of growth and help cushion a
decline in demand from other countries,” he said.

“Policy options may also entail exchange rate adjustments
consistent with smoother rebalancing,” he added.

A lot has already been done to set up mechanisms to help developing
countries vulnerable to sudden shifts in capital flows in the aim of
alleviating the need to accumulate massive amounts of foreign reserves,
Noyer noted. “I think there is still scope for improvement.”

The crisis has also revealed the need to expand the scope of
financial supervision and regulation, particularly to include “black
holes” and the “shadow banking system,” he stressed.

Micro-supervision must be complemented by a macro-prudential
approach that has been developed in many countries, he added. Regulation
must also become “truly global” in response to the globalization of
finance, he said.

The challenge is now to calibrate and phase in the new framework in
a way that does not impede the recovery and not contradict
macro-economic objectives, he said.

“If the rebalancing process happens too fast, it might weaken the
recovery; but if reforms are delayed too much, the longer-run growth
prospects will be affected negatively,” he warned.

Noyer also said he supported reducing the scope of the
mark-to-market approach and moving from an incurred loss model to a
forward-looking model for provisioning.

–Paris newsroom +331 4271 5540; stephen@marketnews.com

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