Exclusive Trichet interview: It is time for banks to start lending again

In his most detailed interview since the collapse of Lehman Brothers in mid-September, which took place in Frankfurt on December 12, Trichet calls upon the top management of commercial banks to “recognise that they are operating in an environment in which a lot of the fundamental risks to liquidity and solvency have been addressed.”

But he also acknowledges that global financial markets are at a critical moment: “Everything has to be improved. It is the system itself which is at stake. It has proven to be too fragile, and we have to improve the resilience of the entire system.”

In a wide-ranging discussion with Euromoney’s Clive Horwood and Mark Johnson, Trichet analyses the benefits of the global response to the crisis, what more can be done, the possibility of more large banks going bust, and the consequences of the ECB taking an increasing array of securities onto its balance sheet. He also defends the ECB’s monetary policy, notably the controversial decision to raise interest rates in the summer, and calls on governments to stick to the rules on fiscal stability.

But his over-riding message is clear: “I am sure that banks will not forget that their job – and actually the franchise of a bank – is to lend.”


Part 1: Responding to the crisis; repairing the system; the need for global regulation

Q: At what specific moment did you realise that we were in a financial crisis of unprecedented magnitude?

Q: What for you has been the moment of greatest danger to the financial system?

Q: Has the coordinated global response been as timely and far-reaching as it could have been?

Q: How will this cooperation progress?

Q: As it is a global crisis, in a global market, does that mean we need a global regulator?

Q: What would happen if a bank in Europe was in serious difficulty, and its collapse would provide a systemic threat to financial markets, but the appropriate national government was either unwilling or unable to provide a bailout?

Q: Given the repercussions that the collapse of Lehman Brothers had on the market, was it in hindsight a bad decision to let such a systemically-important bank fail? 


Part 2: Efforts to get banks operating normally again

Q: The ECB is accepting an increasing array of securities as collateral from Europe’s banks in an effort to get them lending again. What pressure is this putting on the size and quality of your balance sheet?

Q: Do you have a timescale in mind for when you might begin to manage down your balance sheet?

Q: What more can you do to restore fully-functioning markets?

Q: So your message to banks is: Start lending again.


Part 3: Future shocks; restoring confidence

Q: Do you think that we have seen the worst, if not the last, of the shocks?

Q: Isn’t the most important thing that banks believe the worst is over?


Part 4: Trichet stands behind interest rate decisions; the particular challenges of the ECB

Q: With hindsight, was it the correct decision to raise interest rates in the summer?

Q: With more than a dozen countries with divergent economies within the eurozone, how much more difficult is your task compared to that of other central banks?

Q: Do you envy the flexibility that the Fed or the Bank of England have had to make dramatic rate reductions?


Part 5: Fiscal stability: "Let's stick to the rules"

Q: Governments are finding themselves under increasing pressure on finances. Financial stability criteria are being breached. Often temporary breaches become permanent. Does this concern you?

Q: Is there a danger that countries outside the single currency will look to speed up entry because of the safety net it is perceived to provide?