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Oct. 13 (Bloomberg) -- European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo said the central bank must be mindful that its role as lender of last is not abused.
“The central bank must remain vigilant in order to ensure that its enhanced intermediation role during crisis times is not abused by fiscal authorities and market participants,” Gonzalez-Paramo said according to the text of a speech delivered in Kuala Lumpur, Malaysia, today. “It remains essential that they strictly fulfill their own responsibilities.”
The ECB stepped up its crisis response last week by reintroducing one-year loans to banks, restarting a covered bonds program and offering unlimited cash provisions up to three months through the first half of 2012. Officials resisted pressure to cut interest rates and instead focused on keeping banks afloat until Europe’s leaders find a solution to the debt crisis that has roiled financial markets.
“It is essential that prudent fiscal and economic policies are employed in all euro-area countries,” Gonzalez-Paramo said. This would “reduce banks’ current overreliance on central bank funding and facilitate the ECB’s task of delivering price stability.”
Gonzalez-Paramo reiterated that the ECB’s crisis measures are “temporary” and that “maintaining measures which have outlived their usefulness for too long could trigger other types of imbalances which could contribute to a new crisis in the future.”
--Editors: Craig Stirling, Fergal O’Brien
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