ECB: banks risk being hooked on bailouts

The head of the European Central Bank today warned that banks run the risk of becoming addicted to the cheap funding it has supplied to save the system from collapse.

ECB president Jean-Claude Trichet said the billions of euros of emergency funding the central bank has pumped into the banking system must be withdrawn as the recovery gains momentum.

He also warned banks that taxpayers would not tolerate the financial industry returning to the excessive risk-taking and bonus payments that brought the global economy to its knees.

Trichet said: "Emergency treatment and strong medicines are sometimes necessary. But, if their use is prolonged, they can lead to dependence and even addiction. Eventually, the administration of painkillers must be stopped if patients are to get back on their own two feet."

However, he said that despite recent improvement in the financial sector, including bumper profits at investment banks, it was too early to declare the crisis over.

He said banks must use profits to shore up their battered balance sheets rather than bonuses.

Trichet said: "Our 330 million fellow citizens in the euro area will surely not tolerate a relapse into excessive risk-taking at the taxpayer's expense."