UPDATE 1-End of ECB support depends on medium-term- Trichet

* Euro zone seeing moderate, uneven recovery

* Banks need higher capital buffers

By Daniel Flynn

PARMA, Italy, April 10 (BestGrowthStock) – ECB President Jean Claude
Trichet said on Saturday the euro zone would see a moderate and
uneven recovery this year, but the pace of withdrawing
extraordinary ECB support depended on medium-term perspectives.
“The global economy has just begun to emerge from a
prolonged period of economic turmoil. In the euro area, we
expect a moderate recovery in the current year … the recovery
will probably be uneven across regions and sectors, and over
time,” he told Italian employers’ association Confindustria.

“For what the ECB is concerned, a medium-term perspective is
what motivates the gradual phasing-out of our extraordinary
credit support measures,” he told the conference in Parma.

Trichet warned that sustaining credit support too long could
provide a subsidy to banks’ trading activities, rather than
their core role of lending to businesses and consumers.

This week, the ECB as expected reversed plans to toughen its
requirements on collateral for lending, extending a helping hand
to Greece, which could otherwise have found its bonds were
ineligible.

Trichet declined to comment when asked by journalists about
details of a possible EU support package for Greece, whose
borrowing costs have soared in recent days creating concerns
over its hefty debt repayments this month.

The ECB, however, is taking small steps towards ending its
liquidity lifeline to the financial sector, returning to
auctioning three-month money to the highest bidder rather than
providing unlimited supply. It has extended until October its
policy of unlimited funds at flat rates for weekly and monthly
loans.

The announcement of the size of the auction on Monday will
be closely watched, but Trichet insisted that banks’ lending was
no longer being constrained by a lack of liquidity in the
financial system, as it was at the height of the crisis.
“We still see … a residual slight prevalence of banks
declaring a tightening in their credit standards for loans to
enterprise. But this is now entirely due to macroeconomic
uncertainty,” he said.

To prevent a repetition of the crisis, Trichet said
regulators needed to improve the transparency of the risks in
financial markets — sometimes shrouded by opaque financial
instruments like derivatives — and remove short-termism in
incentives to banks and traders.

Crucially, he said, the banking sector needed to boost its
capital buffers to avoid liquidity crunches during downturns
which exacerbated falls in asset prices and the severity of
economic downturns.
Investing Advice

(Editing by Susan Fenton)

UPDATE 1-End of ECB support depends on medium-term- Trichet