–Adds comments on fiscal consol, exit strat, to story sent at 09:15 GMT

MUNICH, Germany (MNI) – There is a danger that major issues on the
banking reform agenda could be thrown off track by waning commitment and
political interests, and this must not be allowed to happen, European
Central Bank Governing Council member Axel Weber said Friday.

Only a coordinated and harmonized effort can ensure financial
stability and set the path for “steady and sustainable global
development,” Weber said in a speech on banking regulation for delivery
at an economic conference.

Weber made no mention in his prepared remarks of ECB monetary
policy or the Greek crisis.

The financial crisis, “though in its third year now, still presents
us with a great many challenges,” Weber said.

As markets have stabilized and the recovery begins, the focus has
moved to preventing future crises, and “a cornerstone of this attempt to
create a more stable financial system is the reform of banking
regulation,” he said.

Weber noted that an additional tax on the banking sector “could be
useful in recouping some of the costs of the crisis,” but “it is an
inferior instrument in terms of internalising the effects of risky
activities on financial stability.”

“Hence, the reform of the Basel II framework is rightly given
preference by regulators and should be implemented with priority by
policymakers,” he said.

Commenting on the reform process itself, Weber observed that “up to
now, policy development has proceeded according to agreed and very
ambitious timelines, reducing the uncertainty as far as possible.”

The financial crisis has taught three broad lessons, Weber said:
the need to toughen regulation on the microprudential level, to
complement it with macroprudential supervision, and to ensure
harmonization and cooperation at an international level.

“Although we have already come a good distance, we have to sustain
the political will to stay the course,” he stressed.

“As we are now hopefully entering better times, there is a certain
danger that some major issues on the reform agenda might fall prey to
dwindling commitment and political interests,” he warned.

This development “must not be allowed to happen,” he insisted, as
“only a coordinated and harmonised effort will enable us to ensure
financial stability and thus pave the way for steady and sustainable
global development.”

“Of course, we know we can never prevent a failure of a financial
institution with 100% [certainty] and nor should we try to,” he told the
audience.

“We have to increase the resilience of the financial system to make
it more resilient and shock-proof,” he added.

Weber said that globally the only way forward for governments is
fiscal consolidation and that sovereign debt levels cannot be continued
as they are at present.

He added that he had trust in both governments and central banks to
see through the exit from expansionary policies.

–Frankfurt bureau; +49-69-720142; frankfurt@marketnews.com

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