MNI POLICY: ECB's Lautenschlager Says Bubbles May Be Building

By Luke Heighton

     FRANKFURT (MNI) - There is a risk financial markets are developing bubbles

after a long period of low interest rates and abundant liquidity, European

Central Bank Executive Board Member Sabine Lautenschlager said on Friday.

     "Bubbles might be building up and there are risks assets might be

mispriced, Lautenschlager told an audience at the Central Bank of Malta. "Market

participants might become too lenient when assessing the real value of assets,

and they might overly rely on readily-available liquidity and become too lazy to

prepare for different, less convenient times."

     Here are key points from the Vice-Chair of the Supervisory Board's speech

in Valletta.

     --Sudden changes in market sentiment, incomplete banking reform,

unsustainable public and private debt and low liquidity in the non-banking

sector are the four key risks to financial stability. 

     --While the ECB can contribute to the stability of the financial system,

national authorities play a crucial role in macroprudential policy.

     --It may be necessary to create a a single macroprudential toolkit,

consolidating all the tools and procedures which are scattered in different

places within and across different rulebooks. National authorities should have

powers to choose the tool that it deems most appropriate for the risk at hand

     -- Banking supervisors should have the power to request data and

information from banks "whenever they need to," while being "mindful of the

reporting burden on banks."

--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

[TOPICS: M$E$$$,M$X$$$,M$$EC$]