MUMBAI: The role of ratings agencies and the creation and distribution of complex financial products need to be improved in the light of market turmoil, the head of the European Central Bank was quoted as saying yesterday.
Jean-Claude Trichet told India's Economic Times that a correction in global markets had not been too surprising as central banks had said low volatility in global finance and very low levels of risk premiums had indicated underpricing in the economy.
The ECB president said there were no trade-offs between anchoring inflationary expectations and ensuring proper functioning of the money markets. Both had to be done.
We must look at and improve the overall functioning of rating agencies, the highly sophisticated structured finance products, core intermediaries, commercial and investment banks and, in particular, how to assess the model of originate and distribute, he said.
Highly rated securities that repackaged subprime mortgages and other assets have fallen sharply in price, forcing some holders to sell at a loss, as the US housing market headed into a downturn.
That has sparked some criticism from politicians and regulators over the way credit rating agencies assessed the credit quality of these complex debt securities and prompted the agencies themselves to look at how they assess some types of risks, such as market and liquidity risk.
He reiterated that abrupt and sharp rises in currencies were not good for economic growth and he did not welcome brutal currency moves.
The euro has rallied to a record high against the broadly weakening US dollar, which has hit a record low against a basket of major currencies.
Trichet also said the very high price of oil was exerting a depressing influence on the global economy and was putting upward pressure on inflation which at present was not welcome. Reuters