Brussels, 31/08/2007 (Agence Europe) - Current upheavals on the financial markets illustrate the risks of a major financial crisis spreading. As financial integration within the EU gathers pace and pan-European banks emerge, is Europe ready to face up to a major banking crisis? As past examples have shown, everything points to such crises, although of a specific kind each time, being extremely costly. Current procedures, which are largely national, complex and based on voluntary cooperation of national authorities, do not appear to allow effective management should any one of these banks fail, the European think-tank, Bruegel, concludes after examining the question. Governments, central banks and specialised agencies are responsible for prevention, management and resolution of crises in order to minimise the possible collective costs (in the past there has been frequent recourse to taxpayers' money). The author of the study, Nicolas Véron takes the view that “crisis management requires concentration of authority: you need to know who is in charge”.
Without going into the details of the architecture that he is recommending, Mr Véron calls for a two-level system to ensure financial stability and meet the coordination and operational flexibility needs required for managing a crisis. According to this system, risks must be dealt with, either at the level of the EU through prudential arrangements and EU institutions, or, under the principle of subsidiarity, at national level. A European prudential regime would be geared to the pan-European banks (16 banking groups representing one third of European bank assets) whereas, for the banks that are directed more to the national market, a proximity approach would prevail, states the study. Any European prudential arrangement should expressly include the possibility for a failing bank to disappear, in order to encourage cautious savings management. Given the magnitude of the change towards such a system, a decision at the highest political level (heads of state and government) is needed to move forward, the report adds. The report will soon be available on the internet: http://www.bruegel.org. (ab)