Speaking at a conference in Paris on Monday, Trichet added that deteriorating credit flows are associated with deleveraging and must be closely watched.

"If such behaviour became widespread across the banking system, it would undermine the raison d'être of the system as a whole," Trichet said.

Furthermore, the central banker said that financial systems remain under "severe strain", thus hampering economic recovery. In turn, the current recession is putting further pressure on the financial system.

In his speech, Trichet outlined a number of ways to strengthen the financial system, including making sure that the system in sustainable in the long term, improving banks' resistance to shocks, and identifying and filling in regulatory gaps.

"The current crisis is a loud and clear call for extending regulation and oversight to all systemically important institutions -- notably hedge funds and credit rating agencies," he said.

Trichet also said that the ECB has the technical capacity to take on a greater supervisory role. "Indeed, it would be a natural extension of the mandate already assigned to us by the Treaty, namely to contribute to financial stability," Trichet said.

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