Brussels, 02/05/2011 (Agence Europe) - Several European leaders discussed financial integration in Europe on Monday 2 May at a conference in Brussels, following the publication of a report by the European Commission and a report by the ECB on the subject. They focused on the new EU bank supervision system and future financial regulation issues at EU and international level.
EU Internal Market Commissioner Michel Barnier said that a new EU bank supervision had been introduced in January 2011 with the creation of the European Systemic Risk Board (ESRB) that will issue warnings and recommendations about macroeconomic problems in the EU, and also three EU supervisory authorities (one for banking, one for pensions and insurance and one for securities).
This three-body system is the first of its kind in the world, he pointed out, unlike the twin peaks model of one supervisor for banks and the other supervisor for the financial markets. He said it already applied in France, Italy, and the Netherlands and would soon be introduced in Belgium, Portugal and the UK. The commissioner said a European bank supervisory culture needed to be created and the authorities had to be given the resources to carry out their work, increasing total staff numbers from 300 or 350.
Talking about changes to financial regulations, Barnier expressed a number of concerns. The EU authorities' binding powers must be set out in legislation covering the industry, as is already the case for financial rating agencies and speculative funds registered in the EU, but not yet for standard derivatives clearing houses. The impact of the legislation being negotiated or future rules needs to be assessed and the EU must ensure its new systems match moves in other parts of the G20. Barnier warned that G20 members should have the prime objective of ensuring that they implement the pledges they have made.
“Stress tests”. EU Economic and Monetary Affairs Commissioner Olli Rehn said the bank stress tests would be applied to nearly 90 European banks and would be the first decisive test of the new EU bank supervisory structure (see EUROPE 10356). The governor of the Banca d'Italia, Mario Draghi, said they had to be credible and transparent.
The president of the European Banking Authority (EBA), Andrea Enria, explained the three main changes to the 2010 tests: - testing for a renewed economic crisis; - reducing European banks' room for manoeuvre when they draw up balance sheets; - and setting up a team of experts from national supervisory bodies, the EBA and the ECB to spend a month studying the information provided from the tests. This will be the very first time that such confidential information will be provided to supervisors not in direct control of the banks in question, and will be covered by very strict confidentiality rules, said Enria, arguing that this would help generate a true EU bank supervisory culture.
The stress test criteria have been criticised with European supervisors not examining the impact of a member state being unable to repay its debts despite the fact that the markets are preparing for a restructuring of Greece's debt. Enria said that the banks' exposure to sovereign debt would be published by financial statement, by country and by date of maturity.
“Burden sharing”. The ECB vice-president, Vítor Constâncio, talked about the work to set up an EU crisis management system to cope with the bankruptcy of a multinational financial entity (see EUROPE 10240). The main obstacle to the transfer of power to EU level in this connection is the problem of financial burden sharing for the bankruptcy by the countries in question, he explained. He said the setting up of national funds to boost harmonised functioning would lead in the end to a genuine European fund and thereby solve the burden sharing problem.
Constâncio welcomed the Commission's idea of a system whereby Anatolian supervisors can ask a financial institution's creditor to cover its own losses (bail in). Draghi said that any system must include bail-ins because the cost of bailing out a too-big-to-fail financial institution should be borne by shareholders rather than taxpayers. He said that the IMF's Financial Stability Forum (that he chairs) takes a three-pronged approach to the supervision of too-big-to-fail financial institutions, namely the institution's capacity to absorb its losses, restructuring rules and supervision rules. (M.B./transl.fl)