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ECB president Jean-Claude Trichet knows that confidence must be restored before markets begin to function normally again. But he believes that the concerted action of central banks and governments means financial institutions should now be preparing to restore their normal lending and borrowing relationships. 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.