IMF MEETING Trichet says no need for 'heavy-handed regulation' after mkt turmoil

IMF MEETING Trichet says no need for 'heavy-handed regulation' after mkt turmoil

	Published : Sun, 21 Oct 2007 04:59 By : Agencies Print this Story

WASHINGTON (Thomson Financial) - European Central Bank president Jean-Claude Trichet said there is no need for 'heavy-handed regulation' to address the problems highlighted by the recent turmoil in credit markets.

Trichet said more transparency and disclosure of information by banks and non-regulated entities would help reduce uncertainties among market participants, and this would in turn lead to less disruptive market movements and overshooting.

But he added: 'I am equally convinced that we do not need heavy-handed public sector regulation to reach our goals.'

Self-regulation by the financial industry has often proved effective, he said in a speech on the sidelines of the annual meetings of the IMF and World Bank.

Trichet cited the benchmarks for best practices recently worked out voluntarily by some hedge funds as an example of such self-regulation.

He said banks' capital bases remain solid despite the impact of the US subprime mortgage crisis on their earnings.

'Many large institutions have been warning that future earnings will be materially affected as a result of both direct and indirect exposures to US subprime mortgage securities. Nevertheless, after several years of strong profit growth, capital bases are comfortably in excess of regulatory requirements. As a result, the global financial system -- especially the core financial institutions within it -- has remained resilient,' he said.

Trichet said the current correction in credit markets is not a surprise as central banks had long warned that risks were being underpriced by financial markets.

'In many respects the present episode can be interpreted as correcting those anomalies and paving the way -- once the turbulences would have dissipated -- for a more sustainable structure of global finance,' he said.

But he said it is notable that the epicentre of the market turbulence this time was in the advanced economies rather than emerging markets.

He said some signs of normalisation in credit markets have emerged in September and October, but it is important to monitor events closely to be sure that the surge in defaults in the US mortgage market is not followed by a rise in default rates in other parts of the credit markets.

steve.whitehouse@thomson.com

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