By P.R. Venkat and Samuel Holmes
OF DOW JONES NEWSWIRES
SINGAPORE (Dow Jones)--European Central Bank governing board member Christian Noyer said Monday that recent profits seen in the financial sector were mostly due to the fiscal and the monetary policies of governments and central banks and warned that some financial institutions have begun to take the same kind of risks that sparked the financial crisis.
"There are signs that parts of the financial industry have resumed risk taking practices reminiscent of those which led to the crisis," Noyer said at a financial seminar in Singapore.
Noyer said that major international banks have released "impressive" quarterly profits in recent weeks and that it was striking that their performances were achieved only a few months after some of them came very close to failure.
"This might give the impression that the financial sector has recovered its balance and that no further reforms are necessary. Nothing could be further from the truth," Noyer said.
"It is clear to everyone that recent profits in the financial sector, while welcome, are, for the most part, a result of public policies implemented to combat the crisis. They would have not been possible without low interest rates that currently prevail and the public guarantees still in place."
He said that reforming financial regulation continues to be an urgent priority and that economies need more robust and better-capitalized banks, and that lenders should exercise restraint on dividend payments and compensations.
"We don't know yet what kind of financial system will emerge from the crisis. We need to think about this. We want to reduce or eliminate moral hazard, but the definition of a systemic institution still eludes us," Noyer said.
He said that the banks must have a strong capital base in the long run; in the short run, credit flows to the economy are expected to continue.
"We don't want, in short, the introduction of a new capital regime to have a procyclical effect on our economies," Noyer said.
Noyer, who is also the governor of the Banque de France, warned that although the global economy may have reasonably stabilized, downside risks still remain.
"Current forecasts by the IMF show reasonable prospects for growth in the world economy in 2010. But there are many downside risks and adverse scenarios that could still materialize."
Noyer also declined to comment when asked about the euro's recent gains against the U.S. dollar. Earlier in the day, the euro hit a 14-month high of $1.5064.
Separately, speaking at the same seminar, Monetary Authority of Singapore Managing Director Heng Swee Keat said that governments around the world would need to implement a carefully calibrated unwinding of stimulus packages to preserve economic stability.
"Though we are yet to see a full rebound in financial markets, there is a sense of relief and optimism," Heng said.
-By P.R. Venkat and Sam Holmes, Dow Jones Newswires; 65 6415 4151; venkat.pr@-dowjones.com
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