ECB's Quaden: Financial markets face tough times

BRUSSELS, June 19 (Reuters) - Financial markets face challenging times with financial turmoil transforming into a more classical downturn cycle, European Central Bank Governing Council member Guy Quaden said on Thursday.

"The cyclical outlook and the operating environment for financial institutions are likely to remain important challenges in the quarters ahead," Quaden said in the foreword of a financial stability report by the Belgian central bank, which he heads.

"Ongoing balance sheet repair through deleveraging in the household and financial sector may consequently usher in a period of less buoyant growth in large segments of retail, merchant and/or investment banking," he said.

Quaden added the downturn "could actually be more severe and even more protracted given the size of the shock that was imparted to major intermediaries in the financial system and the significant current or potential adjustments in several national real estate markets." (Reporting by Julien Ponthus; Editing by Leslie Adler)