European Central Bank Governing Council member Christian Noyer warned that banks are taking the same risks that led to the financial crisis and said they should preserve capital rather than pay it out to bankers and investors.
His comments came as regulators around the world mull reforms to lower the risks that large banks can pose to the financial system and rein in the type of recklessness that fueled the credit crisis.
Noyer said impressive bank profits in recent weeks were a result of public policies to combat the crisis, and did not mean the industry had recovered its balance or that further reforms were not necessary.
"Nothing could be further from the truth. Indeed, one major risk in the period to come is the emergence of a business as usual mentality," Noyer said in a speech at a financial conference in Singapore on Monday.
"There are signs that parts of the financial industry have resumed risk taking practices reminiscent of those which led to the crisis," he said, pointing to bankers' pay packages that appeared out of line with performance.
Recent news that Goldman Sachs [GS 179.00 -0.37 (-0.21%) ]had set aside $16.8 billion to pay staff, so soon after repaying $10 billion in taxpayer money, fueled concerns that Wall Street is returning to practices commonplace before the crisis.
Banks Need to Boost Books
Noyer, who is also the head of France's central bank, said the global economy has stabilised and the worst had been avoided. But he noted that bank credit to businesses, especially small and medium sized companies, was faltering.
"Most of the negative effects of the economic downturn on balance sheets are still to come," he said. "Efforts towards long term reform must not create, in the short run, additional downside risks to economic activity."