EU court criticises ECB over risk management rigour

The European Court of Auditors on Monday criticised the European Central Bank for what it said was inappropriate management of risk in decisions affecting the eurozone. In its report on 2010 activities at the Frankfurt-based central bank for the euro, the Luxembourg-based court said ECB procedures when assessing danger "increases the risk that the view of the bank's exposures might not be comprehensive."
A spokesman for the court said the central bank "does not apply the same processes for the management of financial, and operational risks." It urged the bank to appoint "a hierarchically independent... chief risk officer," to ensure the same rigour is applied when making political judgements as those concerning financial forecasting. "The court believes that if those two sides could talk more to each other, they could better mitigate the risk," the spokesman told AFP.
The report centres on the ECB's activities in 2010, when it first decided to embark on a massive bond-buying spree in an effort to shore up the euro after state debts in Greece needed a first international bailout. Since then, the bank has bought up further masses of Irish, Portuguese, Italian and now Spanish bonds in a bid to prevent contagion on financial markets and limit the impact of external investor flight.
At the same time, the ECB has provided commercial banks with hundreds of billions of euros in cheap, long-term loans to ensure they have sufficient liquidity. Since then, Spain's banks have been brought virtually to their knees - and while the court said that the ECB's approach was "sound and adequate for the management of investment and policy operations at the ECB," it added that "public disclosure" of detailed internal practices was desirable.
In an annex to the 100-page report, available at http://eca.europa.eu/portal/pls/portal/docs/1/14884741.PDF, the ECB replied that it "takes note" of these recommendations. It added that since 2010, it has already placed the bank's vice-president in charge of operational risk. The ECB said it had also changed its financial risk assessment procedures, as a result of "the more significant role played by financial risk management in central banks in general and the ECB in particular."