By Sven Egenter
BASEL, Switzerland, Jan 9 (Reuters) - Bankers should be aware of the fragility of the economic recovery when taking on new risks, the head of the Financial Stability Board (FSB) warned on Saturday.
Mario Draghi said financial markets were in much better shape than could have been expected a year ago
But much of the improvement was due to extraordinary monetary and fiscal measures, he said, a reference to the billions of dollars of taxpayer money used to shore up banks and the broader financial system amid the worst crisis since the Great Depression.
Draghi noted that banks were more inclined to take on risks again. 'Bankers should be aware of the fragilities in the system,' he said. 'They should have in mind that there are many fragile sides to this beginning of the recovery.'
He was speaking at a media briefing following a plenary meeting of the FSB at the Bank for International Settlements in the Swiss city of Basel.
Banks were able to raise capital, and their profitability, liquidity and funding conditions had improved significantly, Draghi said.
'At the same time, there is very substantial fragility in the system,' said Draghi, who is also governor of the Bank of Italy.
Draghi said that the refinancing needs of banks and companies were of a 'really impressive amount' and governments also needed an extraordinary amount of money.
In addition, huge capital flows were driving up asset prices in emerging market economies, also adding to the fragility of the system, he said.
These issues were also on the agenda of central bankers gathering in Basel for their regular, bi-monthly meeting on Sunday and Monday, Draghi said.
The FSB said in a release that the official support measures should now be more targeted to address specific areas of weakness than during the height of the crisis.
'It is important that liquidity and risk capital be directed toward supporting credit to sectors that will contribute to a stronger real economy, including small and medium-sized enterprises,' it said.
REVIEW OF MEASURES
The FSB is made up of senior representatives of national central banks, regulatory and supervisory authorities and ministries of finance, international financial institutions, standard setting bodies, and committees of central bank experts.
The board was established to address vulnerabilities and to develop and implement strong regulatory, supervisory and other policies in the interest of financial stability.
The FSB has been tasked by the G20 group of countries to make sure that a wide range of new financial regulations is applied consistently across the world.
The FSB said on Saturday it had launched a review of the measures taken by its members to ensure that bankers' pay did not foster excessive risk-taking. The results of the review were due by March.
The board also said it would present a first set of proposals on how to tackle the issue of banks that were 'too big to fail' to a G20 summit in June this year.
The board published a framework to ensure that countries stuck to international regulation guidelines, which includes periodic peer reviews and the option to publish a list of non-cooperative countries by the end of 2010.
For more on the FSB click: www.financialstabilityboard.org
(Editing by Mark Trevelyan) Keywords: BIS/FSB (sven-markus.egenter@thomsonreuters.com; +41.58.306.7351; Reuters Messaging: sven-markus.egenter.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
BASEL, Switzerland, Jan 9 (Reuters) - Bankers should be aware of the fragility of the economic recovery when taking on new risks, the head of the Financial Stability Board (FSB) warned on Saturday.
Mario Draghi said financial markets were in much better shape than could have been expected a year ago
But much of the improvement was due to extraordinary monetary and fiscal measures, he said, a reference to the billions of dollars of taxpayer money used to shore up banks and the broader financial system amid the worst crisis since the Great Depression.
Draghi noted that banks were more inclined to take on risks again. 'Bankers should be aware of the fragilities in the system,' he said. 'They should have in mind that there are many fragile sides to this beginning of the recovery.'
He was speaking at a media briefing following a plenary meeting of the FSB at the Bank for International Settlements in the Swiss city of Basel.
Banks were able to raise capital, and their profitability, liquidity and funding conditions had improved significantly, Draghi said.
'At the same time, there is very substantial fragility in the system,' said Draghi, who is also governor of the Bank of Italy.
Draghi said that the refinancing needs of banks and companies were of a 'really impressive amount' and governments also needed an extraordinary amount of money.
In addition, huge capital flows were driving up asset prices in emerging market economies, also adding to the fragility of the system, he said.
These issues were also on the agenda of central bankers gathering in Basel for their regular, bi-monthly meeting on Sunday and Monday, Draghi said.
The FSB said in a release that the official support measures should now be more targeted to address specific areas of weakness than during the height of the crisis.
'It is important that liquidity and risk capital be directed toward supporting credit to sectors that will contribute to a stronger real economy, including small and medium-sized enterprises,' it said.
REVIEW OF MEASURES
The FSB is made up of senior representatives of national central banks, regulatory and supervisory authorities and ministries of finance, international financial institutions, standard setting bodies, and committees of central bank experts.
The board was established to address vulnerabilities and to develop and implement strong regulatory, supervisory and other policies in the interest of financial stability.
The FSB has been tasked by the G20 group of countries to make sure that a wide range of new financial regulations is applied consistently across the world.
The FSB said on Saturday it had launched a review of the measures taken by its members to ensure that bankers' pay did not foster excessive risk-taking. The results of the review were due by March.
The board also said it would present a first set of proposals on how to tackle the issue of banks that were 'too big to fail' to a G20 summit in June this year.
The board published a framework to ensure that countries stuck to international regulation guidelines, which includes periodic peer reviews and the option to publish a list of non-cooperative countries by the end of 2010.
For more on the FSB click: www.financialstabilityboard.org
(Editing by Mark Trevelyan) Keywords: BIS/FSB (sven-markus.egenter@thomsonreuters.com; +41.58.306.7351; Reuters Messaging: sven-markus.egenter.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.