Jean-Claude Trichet, the former president of the European Central Bank, said that central banks using unconventional policies during crises must act fast and communicate clearly with banks and other nations.
“You have to be commensurate with the degree of dislocation and disruption of markets that you have to counter,” Trichet said today at a Federal Reserve conference in Washington. “It calls of course for a diagnosis which would be as lucid as possible and very often a quick and expeditious decision with constant follow-ups.”
Using unorthodox policy also requires having “a collective collegial message coming from the central bank” to other nations around the world, and sending clear signals to the banking system, Trichet said.
“We have to be sure that we send all the appropriate messages to the financial sector itself and the commercial banks in particular to urge them to address resolutely the medium-term recapitalization and balance-sheet repair,” he said.
Trichet is chairman of the Group of Thirty, a panel of former central bankers, finance ministers and academics. He retired from the top job at the Frankfurt-based central bank after his eight-year term ended in October. He was succeeded by Mario Draghi.
After taking unorthodox policy steps, central banks need to “communicate to all other partners of the world, namely the countries themselves, the G20 and the financial stability board, that they have to do the hard job which is necessary to put the house in order,” Trichet said to reporters after his speech.
Policy makers can’t believe that because they “have done this nonstandard measure that they can rest and wait quietly and not do the job,” he said. “That is, for me, extremely important, that that message is sent by the community of the central bank to the other partners, namely countries on one hand and the financial sector on the other.”
Trichet spoke on the second day of the Fed’s conference on “Central Banking: Before, During and After the Crisis.” The two-day gathering involves policy makers from the U.K., Japan and other nations and focuses on topics including new policy tools for fueling economic growth and challenges for central bankers.
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