Interview with Jean-Claude Trichet
Russia Today: How stable do you think the Russian banking system is?
Jean-Claude Trichet: It is a very important question and it is an area of financial stability and banking surveillance where we've had very important co-operation with the Bank of Russia. I would even say that we had the Bank of Russia to continue to work in this area or close to this area particularly with regard to the implementation of the Basel II rules of banking surveillance.
RT: Russian banks have been reportedly borrowing emergency funds from the European Central Bank. Does this give you pause for thought?
J-C.T.: It is not because they are Russian banks. They could be U.S. or Chinese banks, but because they are Euro area banks, their current activity is in the Euro area and are therefore eligible for our refinancing operations. We are not a closed shop ourselves. We are a vast continental economy of 320 million fellow citizens, which has the order of magnitude, if I may, of the U.S. economy itself – and we are open. Again it is not because you are a foreigner that you have access to our refinancing, it’s because you are a foreigner working in the Euro area, and sufficiently actively working to be eligible for this refinancing.
RT: The approach of Russian and U.S. authorities has been to cut interest rates in response to the difficulties in the credit market, while the ECB has simply added liquidity. What’s the difference?
J-C.T.: First, we insure an appropriate monitoring policy stands in order to deliver price stability. Then we look at the interest rate level that had been fixed. We look at the appropriate functioning of the money market and it is what we have done, as has been seen by observers, in a very very expeditious and decisive fashion.
RT: Is banking supervision adequate?
J-C.T.: We have to be very candid to look at all the elements, the authorities that are making up global finance, and to draw on, I would say, candidly all the lessons in all domains. Banking surveillance is one of these domains. I explained to the Parliament last Tuesday that we also have to reflect on certainly accounting, rating agencies, the sophistication of structured products and vigilance that should be exerted by the various core intermediaries in their own risk management concept. Transparency is certainly of the essence in this domain.
RT: How much longer does the credit crunch have to run?
J-C.T.: I think we are experiencing a market correction, which of course has episodes of turbulence and so forth. It is not something which was not foreseen. I myself as the chairman of the G10 took part in global economical meetings where I met Sergey Ignatiev [Chairman of the Russian Central Bank – RT] every two months in Basel. And there I said that our sentiment and the sentiment of the central bankers at a global level was that there was a level of underpricing of risks in the global finance. So I said on behalf of this joint sentiment of colleagues that it would be good for the private institutions and market participants to prepare for, I would say, a correction that would be as orderly and smooth as possible because the risks were underpriced. So we are observing something which is precisely this kind of market correction that we publicly diagnosed quite a long time ago.
RT: When will it be over?
J-C.T.: We are experiencing that market correction in various episodes and I think that the various central banks each in its own constituency with its own economy with its own observations and with the instruments that are at its disposal has done its job.