FRANKFURT, Oct 29 (Reuters) - The European Central Bank should keep its policy of full allotment at main liquidity operations for longer than its very long-term operations, ECB Governing Council member Axel Weber said on Thursday.
The ECB has conducted additional unlimited 6- and 12-month liquidity tenders to aid the banking sector, which has been on life-support since the intensification of the financial crisis.
"Exit from unconventional measures should come gradually," Weber said in the text of a speech at a banking conference in Berlin.
"For example, the full allotment policy for main refinancing operations should, looking from today's perspective, surely be kept in place for longer than the very long-term liquidity injections."
The ECB has been lending banks all the funds they ask for at fixed rates at all its liquidity operations for the last year, but has not promised that this will continue past the start of 2010. The central bank has also not said whether it will renew supplementary long-term operations, lending banks funds for as long as one year.
Weber, who also heads the German Bundesbank, said it was not time to exit from the non-traditional measures yet, but added it should be planned currently. The improvement seen in financial markets and also in the economy depends still in large part on stimulus measures, Weber said.
"Despite all encouraging signs of improvement, the economy and the financial markets still get a lot of their energy from political support measures," Weber said.
"All-in-all, it is appropriate not to remove the monetary and fiscal stimulus hastily."
But he added they should be not kept in place for too long either in their current form.
Banks should also work actively to withdraw themselves from public support measures, Weber said.
"Banks should gradually taper off from taking the medication prescribed by the central banks," Weber said.
"Continuing life dependent on central bank liquidity injections is not an option for an enduring future and surely not a viable business model."
He also said there had been movement towards safe terrain in the financial markets during the past few months, but the situation was still in many ways worse than before the Lehman Brothers collapse in September 2008. (Reporting by Sakari Suoninen; Editing by Andy Bruce)