Crisis in EU money markets not over yet

Business Materials 26 April 2008 08:19 (UTC +04:00)

Financial market turmoil is not yet over with tensions remaining in euro zone money markets, European Central Bank (ECB) Governing Council member Axel Weber said on Friday, Reuters reported.

In a speech prepared for delivery at a banking conference, Weber said there had been improvements in some markets, but more work was needed on restoring confidence between financial institutions and improving risk management.

"It appears that the turbulence on financial markets is not yet over," he said, according to a text released in advance.

"But in the last few weeks the character of the turbulences has changed slightly. While the tensions on interbank money markets remain, share markets, for example, are noticeably firmer today than they were in mid-March."

In the last month, benchmark Euribor money market rates have risen again to four-month highs but European stock markets have gained ground since the start of April, and opened higher on Thursday.

Weber said that in the short term more complete exposure by financial institutions of their financial positions would help to restore confidence. In the longer term, it was important to follow up on recommendations by international regulators, particularly those on better capital buffers for complicated financial instruments, the valuation of structured products and conduits, and the role of external ratings agencies.

Policymakers from the Group of Seven nations earlier this month announced wide-ranging recommendations for more financial regulation, enhanced bank capital requirements, and risk management tools, based on a report by the Financial Stability Forum.

Weber said it was urgent to look at capital requirements for complex structured credit products, backing the FSF's proposal, and also look at liquidity management for off-balance-sheet investment vehicles.