Banks ignored warning signs says IIF chairman

By John Poirier and Karey Wutkowski

WASHINGTON (Reuters) - Banks ignored warning signs of the impending credit crisis, the chairman of a global banking organization said Thursday in releasing a report on the financial industry's response to the turmoil.

Institute of International Finance Chairman Josef Ackermann, who chairs the management board at Deutsche Bank AG (DBKGn.DE: Quote, Profile, Research), also saw signs credit strains were easing but warned the economic system might soon face fresh danger from a surge in inflation.

"If you go back over the last two years, there were a lot of signals that indicated we are going just a little bit too far," Ackermann said of banks' excessive appetite for risk before the bursting of the U.S. housing bubble last year.

He said banks are back to a "much more normalized situation" after being forced to take billions of dollars in writedowns and seek capital infusions in recent months.

"My strong conviction is that we are seeing the beginning of the end of the financial crisis," Ackermann said. "Unfortunately on top of that we have some new challenges... from inflationary pressures, the weakening of the dollar."

The IIF report said central bank efforts to provide liquidity had been impressive but called on the financial industry to do more to restore confidence and credibility.

Firms should have a company-wide focus on risk and name a chief risk officer the report said. They should also have robust methods in place to monitor liquidity.

"We are accountable for a large part of the problems," Bank of Nova Scotia (BNS.TO: Quote, Profile, Research) Chief Executive Rick Waugh, an IIF board member, told Reuters.