Brussels, 23/01/2008 (Agence Europe) - Financial stability and crisis management on the financial markets were at the centre of the fourth meeting between European and national parliamentarians on Tuesday 23 January in Brussels. They also discussed how to strengthen cooperation between the national control authorities responsible for monitoring banks engaged in cross border activities and how to improve crisis prevention and management mechanisms.
With implementation of the “Lamfalussy” process (legislative procedure at four levels that facilitates adoption of the European regulatory framework in financial services), European integration of financial markets is progressing faster than integration of controls, declared Pervenche Berès (PES, France). A Luxembourg parliamentarian appealed for a “consolidated supervision model” through which national control authorities would be in charge of supervising cross-border financial institutions. This model had the advantage of being cheaper than the one introducing a European monitoring authority, and respected the subsidiarity principle by allowing national supervisors the responsibility of controlling the component parts of a group based in another member state. Baroness Cohen of Pimlico, from the British House of Lords (EUROPE 9465) said that setting up a control leader was contained in the “Solvability II” draft directive, which was both rational and positive. Gioacchino Alfano from the Italian parliament spoke about the possibility of setting up supervision mechanisms that respected the “comply or explain” principle.
Andrej Bajuk, the Slovenian minister of finance, said that it would be appropriate to include in the mandates of the national authorities the objective of cooperation and of convergence with EU level monitoring. This fact was part of the ongoing reflection at the two national experts' committees at the Council (EUROPE 9557). The acting president of the Ecofin Council referred to the Slovenian presidency's work programme on the “Lamfalussy” process, crisis management and the immediate response to financial turbulence (EUROPE 9583). It also said that during the informal meeting in April, finance ministers would study the possibility of simplifying, uniting and accelerating implementation of the three road maps adopted in 2007. Jean-Claude Trichet, the president of the European Central Bank (ECB) said that progress was possible for improving convergence of controls and rules. He said the additional measures were necessary and involved: - harmonisation of regulatory instruments at European level by getting rid of the addition, by member states, of rules over and above those decided on at European level (“gold-plating”); - consistent implementation of the supervisory requirements adopted by the European committees of national regulators (CESR, CEBS, CEIOPS); - the drawing up of simple supervisory procedures by national supervisory authorities.
The first thing to improve was internal risk management by financial institutions, supervision by national authorities came after that, said Baron Alexandre Lamfalussy. This former chairman of the committee of the wise on regulation of the securities markets noted that the committee had, as early as 2001, warned that increased efficiency of the markets would not necessarily mean increased financial stability. The committee had stressed the urgent need to enhance European cooperation on supervision (see EUROPE 7904). Although dismissing the possibility of a step back in financial innovation, he was critical of securitisation, a financial technique which had made the markets more opaque and had contributed to the spread of the US real estate crisis on international financial centres. In similar fashion to Trichet, Lamfalussy recommended increased cooperation among central banks and banking regulatory authorities for the effective prevention of crises.
Excess liquidity. Lamfalussy raised another point which helped cause the current financial crisis. “A very powerful factor was present: excess liquidity,” he said. He observed that the masses of money available came from a combination of things like: - the massive injection of liquidity by the Fed in the United States in the early 2000s to absorb the turbulence caused by the internet bubble; - the US growing chronic deficits. This excess liquidity played a role in the “financial euphoria” before the current crisis, he said, while the financial players did not think that they were running any risk and would always be protected by the central banks. “The community of central banks should manage this situation, and assess the problem in great analytical detail. Otherwise, we will lurch from one crisis to another,” he warned. Questioned by French Senator Paul Girod about the role the ECB should have played to prevent the crisis, he said he did not think the Central bank was responsible.
Were current events the main earthquake or were further, stronger shocks to be expected, a Greek MEP asked. He also wondered why it was up to workers to pay the costs of the current crisis. “It's the whole approach to deregulation (of financial markets) at international level which should be reviewed,” said Sahra Wagenknecht (GUE/NGL, Germany), opining that the limitations of an economic system based on consumer credit had been shown. (M.B.)