TRICHET SEEKS TO WIN RESPECT FOR NEW EU WATCHDOG

Bruxels, January 21 (Reuters)- European Central Bank President Jean-Claude Trichet rebuffed questions about the relevance of Europe's new financial 'super watchdog' on Thursday, saying it would gain authority.

Chairing the first meeting of the European Systemic Risk Board (ESRB), Europe's proposed solution to avoid a repeat of the financial crisis, Trichet faced a barrage of questions about the new body's purpose and authority.

The watchdog has no formal enforcement powers. It is designed to take an overview of Europe's financial system and highlight emerging problems for relevant authorities to act on.

If the ESRB is not satisfied, it has the option of going public with its fears and leaving the rest to the persuasive powers of financial markets.

"Authority is not to be taken for granted, you have to gain it of course and I think it is the strong determination of all those who participate in the board to demonstrate and gain authority," Trichet told a news conference after the meeting.

The watchdog brings together the continent's top central bankers, seating them on a 37-member board alongside the heads of banking, trading and insurance authorities and EU Economic and Monetary Affairs Commissioner Olli Rehn.

ESRB vice-chair, Bank of England Governor Mervyn King, said the first meeting was about getting the new body going.

"The purpose of today was to put in place the building blocks," he told the news conference in Frankfurt.

ESRB warnings will be colour-coded to reflect the urgency of the threat. They will draw on information such as stress tests carried out by members such as the European Banking Authority and analysis of information already available.

But critics say that without teeth the ESRB will be too weak to force countries or authorities to adhere to its warnings.

"If they ... just make some quiet recommendations, this will just become another irrelevant European institution," said Daniel Gros, director of the Brussels based Centre for European Policy Studies.

Sensitivities may hamper the body's effectiveness, with politicians likely to argue a major warning could trigger a crisis.

Trichet King

Some analysts said the ESRB is not doomed to irrelevancy.

"The power of influence of regulators can be very high," said Gilles Moec at Deutsche Bank. "This may force decisions upon national governments that otherwise would never happen." Nomura economist Laurent Bilke said: "Warnings by themselves are a sort of sanctions”.

The ESRB has personnel that should command attention from financial markets, with Trichet and King at its helm.

It will be heavily dominated by the ECB in other areas, posing a potential reputational issue for the ECB which could in future be criticised for perceived regulatory failures as well as monetary policy ones.

ECB policymakers will hold a majority on the board, one of the bank's division heads, Francesco Mazzaferro, leads the secretariat in charge of day-to-day running, while ECB staff will provide much of its information and analysis.

There will be four meetings a year, all dovetailing with the ECB General Council meetings that include the EU's 27 central bank governors.

The ESRB is likely to issue warnings about public debt as well as banks, potentially treading on the European Commission's toes.

Some economists expect it will have a low bar for warnings, reflecting the understandable nervousness about missing a crisis. However, with its bloated structure and political sensitivities it also looks set to be steady rather than a dynamic mover.

"I wouldn't expect them to write fiery missives every day," said RBS economist Richard Barwell. "It is likely to be a gradual approach going through the traffic light system from green to amber to red.

"With Trichet and King you have a lot of clout ... The big question is how willing will they be to intervene and will the authorities follow their advice”.

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