FRANKFURT (MNI) – The newly-created European Systemic Risk Board,
which is to begin operations in January, will not change the mandate of
the European Central Bank in any way, even though the central bank is
entrusted with the responsibility of overseeing it, ECB President
Jean-Claude Trichet said in remarks delivered Monday.

Trichet welcomed the advent of the ESRB, for which he lobbied
enthusiastically throughout much of the financial crisis. He said it
must be holistic in its approach.

“Systemic risk analysis and macroprudential policy have to consider
all elements of the financial system and how they interact with each
other and with the economy as a whole,” the ECB chief argued. “This is
an important point about the scope of the new body, which I could not
stress more. One lesson from our experience of the crisis is that there
should not be any ‘pockets’ of financial systems that are not considered
and understood for their implications for financial stability.”

The president of the ECB will chair the ESRB for the first five
years of its existence, which means Trichet will be in the chair until
he steps down as head of the ECB at the end of October 2011.

While authorities had identified beforehand many of the risks that
led to the crisis, “not enough attention was paid to the ways in which
these risks could combine and reinforce each other so as to lead to a
severe systemic crisis,” Trichet said.

“The ECB thus welcomes the agreement to create the ESRB, a body
designed precisely to deal with risks that develop and interact in a way
that can endanger the financial system as a whole,” he added.

He noted that despite the ECB’s support role for the ESRB, it is a
new body that is “distinct and separate from the ECB…The ESRB will not
change in any way the mandate and the functioning of the ECB’s statutory
role.”

The three main tasks of the ESRB, Trichet said, will be to identify
and prioritize systemic risks; raise early red flags when significant
systemic risks exist; and issue recommendations for action to counter
those risks.

“A considerable intellectual and policy challenge lies before us,”
Trichet said. “We have to re-evaluate our understanding of the nature of
risk and market disruptions. We have to re-evaluate our understanding of
the role of financial markets in our economies and our societies. And we
have to re-evaluate our understanding of the very nature of financial
markets, which have shown themselves at times to be less efficient and
far less atomistic than they were deemed to be.”

–Frankfurt newsroom, +49-69-720-142; frankfurt@marketnews.com

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