Brussels, 26/04/2010 (Agence Europe) - A globalised industry needs globalised regulation. The financial crisis has profoundly changed the way the financial industry is regulated. The main political decisions are now increasingly international. These new circumstances bring with them a massive difficulty: how to incorporate the main principles of financial architecture revision into regional and national law, while at the same time avoiding, to as great an extent as possible, differences and inconsistencies, that require regulatory arbitration, which benefits globalised financial institutions? The 8th European Financial Services Conference discussed this challenge at a workshop on developing a system of international financial governance.
Speaking on behalf of the US Treasury Department, Mark Sobel said that, since the financial crisis, the G20 had replaced the G7 as the lead body on financial reform. However, there would be “no international central bank or international regulator” and international decisions would have to be transposed and implemented at national level, he said. Listing several international bodies involved in the reform of financial architecture (G20, IMF, FSB, the Basel Committee, IOSCO, the IASB, and others), David Wright from the European Commission acknowledged that implementation of decisions taken in these bodies was carried out largely through peer pressure. Though these mechanisms were “fairly loose”, he said that 2010 and 2011 would be a critical test in demonstrating the ability of world leaders to move forward on financial reform. Agreeing with Sobel, he said that Europe and the United States, which together make up two thirds of the global financial market, had a particular responsibility if regulatory arbitrage was to be avoided. Before the crisis, supervisors focused more on the health of individual financial institutions in assessing the wellbeing of the system as a whole, suggested Peter Praet, Executive Director of the National Bank of Belgium. Executive Director of Unifortune Albeto Giovannini spoke of the gap that had developed before the crisis between the perceptions of supervisory authorities and those of market players. He said the financialisation of the economy (relative fall in loan granting in relation to the expansion of market activities) had resulted in a reduction in counterparty risk - something the authorities had underestimated.
Of the tangible regulatory reform initiatives, US and European regulators put increasing own-fund requirements at the top of their list of priorities. Chairman of the Committee of European Banking Supervisors (CEBS) Giovanni Carosio said the increase in banking capital was the way “to amend the profitability of certain commercial models” by increasing the cost of the riskiest activities and situations (securitisation, products in a negotiation portfolio, counterparty risk). Also discussed were initiatives to increase transparency in the derivatives market, regulation of hedge funds and crisis prevention and management mechanisms. Internal Market Commissioner Michel Barnier said the Commission planned to propose a review of the directive on deposit guarantee systems which would also look at the introduction of equivalent mechanisms for the insurance sector. (M.B./transl.rt)