New rules on banking oversight

NEW GLOBAL rules for bank oversight should help ease boom-and-bust cycles, top central bankers said yesterday.

European Central Bank president Jean-Claude Trichet, who chaired talks on the global economy at a Bank for International Settlements meeting, said the outlook had brightened but policymakers would push on with reforms to strengthen the financial system.

Policy-makers agreed on proposed new rules for bank oversight late on Sunday which would force banks to set aside more profits as a cushion against hard times and limit how much debt they take on. The new rules will potentially limit the role of bank lending in driving economic growth, but also help to prevent the sort of speculative bubbles which sparked the current financial crisis.

“We have to pave the way for drawing all the lessons from what has been observed in the past, and to avoid precisely the phenomenon of booms and busts that we have observed,” said Mr Trichet.

“We must avoid these kind of bubbles, absence of attention to risks, abnormal risks being taken, paving the way for abnormal bubbles of credit and of assets,” he said. – (Reuters)