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ECB President says we need a ‘paradigm change’

One of my most hated words in business use is 'paradigm'.

I can't stand the word ever since 'paradigm shift' became the most
over-used phrase in bingo words, along with 'value-add', 'benchmark' and
'think outside the box'.

The very word 'paradigm' sends shivers down my spine.

"Paradigm: a model that forms the basis of something".

Then Jean-Claude Trichet, President of the European Central Bank, goes and uses this word as the core theme in his speech in Paris today.

The speech focuses upon the supervisory structures for banks in the future, with Mr. Trichet saying things like:

"Investment-banking business models typically featured high-leverage,
marking-to-market accounting, large maturity mismatches and relatively
limited liquidity and capital reserves. This model was efficient as
long as markets kept booming and functioned properly, but left those
banks with little or no shock-absorption capacity. We have seen the
result: investment banking, as we knew it, has disappeared."

and that he wants to highlight "three areas where change is particularly needed: 1) short-termism, 2) pro-cyclicality and 3) transparency."

On the first, the focus is to move trading incentives to be aligned with long-term objectives rather than annual bonuses.

On the second, the boom-bust banking cycle is the focal point to avoid by creating incentives to hoard capital during good times to cover the bad times.

Finally, transparency will be reduced by avoid over-leveraging through a Central Counterparty (CCP) for Over-the-Counter (OTC) Derivatives, plus more disclosure requirements.

He concludes by saying "a paradigm change, including the three notions of
medium and long-term sustainability,
resilience and a
holistic approach of the global financial
system, is now absolutely essential to correct the fragility of the
market economy which we are presently experiencing."

Maybe this is one of those rare occasions when 'paradigm' is a word that's appropriate for this context.

Paradigm shift: "a change in basic assumptions."

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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