Copenhagen, 09/09/2002 (Agence Europe) - The President of the European Central Bank, Wim Duisenbeg, described himself as being "satisfied" with the informal ECOFIN Council debates on Saturday in Copenhagen which covered monitoring and financial stability. Ministers will re-assess the issue on 8 October during an ECOFIN Council in Luxembourg, on the basis of the Economic and Financial Committee's report.
Last July, Wim Duisenbeg wrote to Ministers to outline his "worries" about the work undertaken for adapting the "Lamfalussy method" in the banking and insurance sectors, in order to improve the monitoring process and regulation at a European level. He believes that the role played by central banks in the prevention and management of systemic risks was not sufficiently taken into account (see EUROPE 5 September p 10). After the President's exposé to the "Council of the Wise Men", Alexander Lamfalussy, President of the ECB, nevertheless considered that, "things were moving in the right direction". Commissioner Fritz Bolkestein stressed that the extension of the "Lamfalussy method" to the insurance and banking sectors ought to take into account the prerogatives of the Commission and the rights of the European Parliament. "I support the objective of organising the political responsibilities (monitoring of the financial markets) but the rights of the Commission and Parliament must by respected", he declared. He also insisted on the need to respect the timetable for European financial market integration by 2005.
In a methodological exposé, Lamfalussy appealed to the central banks to be more clearly involved in the prevention of financial crises and that their experience is taken into account in crisis management. He called on Ministers to establish a clear distinction between work involving prevention of financial crises and crisis management and that of monitoring activities and regulation. In the context of crisis prevention, responsibility for ensuring the effective functioning of the payments system and ensuring sufficient liquidity in the system, "lies with the Governing Council of the ECB, which therefore needs to have the appropriate information enabling it to take the required policy measures." Demarcation between prevention and crisis management is less clear. Mr Lamlafussy declared that, "I assume that there is not much doubt about the part that would have to be played by the ESCB, and therefore the Governing Council of the ECB, in crisis management, but it may be useful to spell this out in some detail." He also commented on the blurring of demarcation lines between the creation of liquidity, "which is obviously the responsibility of central banks" and the use of public resources for baling out a sector in crisis in order to prevent the bankruptcy of certain institutions, which "is the responsibility of governments". According to Mr Lamlafussy, it will be necessary to take into account the expertise of the baking sector and the central banks in risk assessment, as well as the supervisory agencies, which should have as intimately familiar relationship with the fast changing complexities of financial products and operational techniques. "This is why it would seem to me advisable to involve institutionally all central banks in crisis prevention arrangements", explained Mr Lamlafussy before adding that "this is not a plea in favour of giving them primary responsibility for banking regulation and supervision". He concluded that the central banking system should, nonetheless, participate in all the mechanisms involved in the work of the monitoring authorities and regulation, in order that their experience is taken into account.