Banks turned markets into "monster": German president

Banks turned markets into "monster": German president

Wed May 14, 2008 5:40am EDT

BERLIN (Reuters) - Banks taking on risky investments without adequate risk provision have turned the world’s financial markets into a "monster that must be tamed," German President Horst Koehler said in an interview published on Wednesday.

"Capitalism is not just about pulling in profits but above all about being able to handle risk and the financial markets crisis shows that too many players in banking houses did not understand precisely that," Koehler told German weekly magazine Stern.

"The only good thing about the crisis is that it must now be clear to the responsible thinkers in the sector that global financial markets have become a monster that must be tamed again," he added.

"We have to hold up a mirror to the finance world. They have deeply embarrassed themselves. And I still have not heard a clearly audible mea culpa."

Koehler, a former junior German finance minister who was managing director of the IMF from 2000-2004, said global financial markets had been close to collapse and the real economy would not emerge unscathed.

"The over-complexity of financial products and the possibility of undertaking huge leverage operations with the smallest amount of capital as security allowed the monster to grow," Koehler told Stern.

"We need stricter and more efficient rules, more capital set aside to cover financial investments, more transparency and an independent global institution that monitors the stability of the international financial system," he added.

"I already suggested a while ago that the International Monetary Fund should take on this role."

Koehler, a former head of Germany’s savings banks’ association, has a largely ceremonial role as president but has been vocal in calling for deeper structural reforms to Europe’s biggest economy.

(Reporting by Iain Rogers; Editing by Ibon Villelabeitia)

http://www.reuters.com/article/ousiv/idUSL1436810920080514