PARIS: The European Central Bank may have to use new tools to guard against the risks arising from the liquidity it has pumped into the financial system, ECB Executive Board member Benoit Coeure said on Friday.
Macroprudential policies may be needed to offset an "ugly deleveraging" as euro zone banks dumped assets supporting the real economy and held on to others that did not, Coeure said at a conference at the French Finance Ministry. Such policies aim to reduce the vulnerability of the financial system as a whole rather than its component parts.
Coeure warned that Europe's deleveraging cycle had entered a second phase, with financial markets increasingly jumping into assets offering higher yields.
"Liquidity is needed in terms of the monetary policy stance, but it also creates risks to trigger this search for yield," Coeure said. "So we may need to use macroprudential tools, all of them." Coeure said while the ECB could act at the euro zone level if needed, action would first be taken at the national level.
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