Central banks have the tools to contrast high volatility on financial markets and it is in their interest to use them

Central banks have the tools to contrast high volatility on financial markets and it is in their interest to use them, European Central Bank Executive Board member Juergen Stark said on Saturday.
As liquidity tensions pushed interbank lending rates higher in recent months, the ECB has intervened steadily in money markets to keep overnight rates in line with its 4 percent policy rates.
"With respect to central banks," Stark said in the text of a speech he delivered at a conference in the northern Italian city of Cernobbio, "it is in their own interest to contribute to an orderly functioning of money markets and to solidly anchor inflation expectations in order to avoid additional volatility."
The ECB meets on Thursday and is widely expected to leave interest rates unchanged.
The financial system could play an important role in boosting growth and productivity, Stark said, adding he saw "encouraging signs" of the euro area's potential to remain competitive despite the apparent cyclical nature of its productivity gains.
Stark said higher competition in the banking sector tended to support economic growth. In this respect, cross-border mergers and acquisitions played a positive role while extensive public ownership of banks may distort competition.
The German state is heavily involved in the banking business in Europe's biggest economy.
Stark also pointed to the fragmentation of the retail banking market.
He urged cooperation among supervisory authorities and between them and central banks to detect possible threats to the financial system, especially after the recent market turmoil highlighted the need for more transparency and monitoring on credit risks.
Stark listed a loosening of credit standards and a probably riskier lending attitude among a number of weak points for the euro area's banking sector in the context of the recent turmoil.
"In addition there was a widespread underestimation of risks and a lack of transparency in the context of the extensive use of derivative products," he said.
Despite the need for further integration and possible reforms, Stark said he saw the level of development reached so far by the financial system as "highly beneficial" for the economy of the euro area