FRANKFURT : Financial market turbulence in the wake of the US home loan crisis constitutes a healthy correction, European Central Bank governing council member Yves Mersch said Tuesday in an interview. "We are going to reach a better reappreciation of risks" in the banking system, said Mersch, who is also governor of the Luxembourg central bank.
It would nonetheless take time before the full impact of massive investments in assets backed by high-risk US home loans on the so-called subprime market was fully known, he told the German banking daily Boersen-Zeitung.
The investments were made via what is known as conduits, or companies that banks did not include on their main balance sheets, and integrating the losses into the banks' accounts would require a few more months, he explained.
"I think we will only have a clearer idea in annual reports" that are due in early 2008, Mersch said.
The financial crisis sparked by the meltdown in the US subprime market, where mortgages were made available to people with questionable credit histories, has already affected several banks in the United States and Europe.
In Britain, anxious customers queued up again on Tuesday to withdraw their cash from the embattled bank Northern Rock despite a government pledge to protect savings. - AFP/ms
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