ECB warns against crisis complacency, says risks remain

Fri Dec 14, 2012 7:57am EST
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By Eva Kuehnen and Paul Carrel

FRANKFURT (Reuters) - The European Central Bank, poised to take over supervision of the region's banks, said on Friday there was no room for complacency following early signs of easing strain on financial markets.

It urged governments to push ahead with reforms.

Tension in euro zone debt markets has eased since ECB President Mario Draghi pledged in July to do whatever it takes to preserve the euro but some risks prevail.

Putting the ECB in charge of supervising the larger euro zone banks is an important step to make the bloc's institutions more crisis resilient, but more needs to be done to avoid a renewed crisis flare-up, the ECB said.

"The situation is still very fragile in many ways," ECB Vice-President Vitor Constancio told reporters at a presentation of the bank's twice-annual Financial Stability Review.

"Key financial stability risks remain and there is no room for complacency," the ECB said in the report.

The main risks are a possible renewed intensification of the crisis if governments fall behind on their reforms, a deterioration of banks' health and further funding strains as money and debt markets are still not functioning properly.

Although banks faced lower refinancing needs next year than this year, there was still a lot of pressure because of funding restrains and higher capital requirements, Constancio said. But he also said that a new set of tougher banking standards on capital and liquidity, known as Basel III, would not be implemented in 2013, which would give banks more time to adapt.   Continued...

A structure showing the Euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt July 11, 2012. REUTERS/Alex Domanski