October 26, 2012 / 8:33 AM / 8 years ago

ECB cannot solve root causes of banking crisis: Praet

The Euro sculpture is pictured in front of the headquarters of the European Central Bank (ECB) in Frankfurt, January 17, 2012. REUTERS/Kai Pfaffenbach

MILAN (Reuters) - The European Central Bank can alleviate some pressure on banks struggling to cope with capital shortfalls and funding strains, but a wider policy response is needed to tackle the underlying structural problems, ECB policymaker Peter Praet said on Friday.

The ECB flooded financial markets in December and February with more than one trillion euros in 3-year loans to ease banks’ funding strains in the aftermath of the financial crisis.

Praet said there was some evidence that ECB liquidity injections had helped in supporting credit provisions, but he stressed that broader measures were needed.

“While monetary policy can alleviate deleveraging pressures in crisis times, it cannot address their root causes,” Praet said in the text of a speech to be delivered at a conference in Milan.

“In fact, to tackle the underlying problems, a wide-ranging policy response is necessary, inter alia, pertaining to public finances, economic competitiveness and the financial sector,” he added.

He also said the creation of abundant liquidity could in itself create side effects that needed to be carefully monitored.

Reporting by Francesca Landini, writing by Eva Kuehnen

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