Switzerland's central bank chief has warned that ‘old reflexes’ were returning to the financial world despite pledges for a turnaround from the risky behaviour that precipitated the recent crisis.
Jean-Pierre Roth, who is also a member of the Financial Stability Board, stressed that the international community must follow through with bolstered regulation and sustained reinforcement of international financial institutions with the recovery.
‘All the old reflexes are coming back immediately,’ the Swiss National Bank president complained, referring to an appetite for risk and short-term credit or profit on financial markets.
The G20 group of leading industrialised and developing economies has led a bid for financial reform over the past year, including stiffer requirements for the banking system.
‘I think we absolutely need to continue on that line if we do not want to be confronted eventually with even worse problems,’ Mr Roth said.
Mr Roth, who is due to retire from the SNB at the end of the year, argued that the crisis had removed a fundamental doubt for the banking industry, whether their governments would bail them out in case of trouble.
‘Before the crisis, you didn't know how states were going to behave in the event of a crisis,’ he explained.
‘After the crisis, the head of a major bank knows that in case of a major crisis in the future he can count on state backing, and that's the parameter that has changed fundamentally.’
The pre-crisis ambiguity had broadly encouraged greater prudence and Mr Roth cautioned that its loss posed a ‘fundamental problem,’ hence the need for regulation to take over.
‘We certainly overestimated our capacity to evaluate and manage risks,’ Mr Roth added, calling the crisis a lesson in ‘humility.’
‘The conclusion is very simple, we have to be more cautious, we have to acknowledge that we don't master everything,’ he explained.
Mr Roth said the G20 was likely to prove ephemeral with the end of the crisis, since it lacked a single guiding objective unlike established major institutions such as the International Monetary Fund.
A reinforcement of the IMF, including by giving emerging or developing nations greater place at the expense of European nations, was likely and necessary, the Swiss central banker suggested.
Mr Roth predicted that economic growth was likely to be slow for up to five years in Europe, lagging behind Asia.
