Brussels, 04/04/2008 (Agence Europe) - The national experts on the Economic and Financial Committee (EFC) have produced a new progress report on the turbulence on the money markets, their impact on the real economy (see related article) and work at EU and global level to respond to the turbulence. Following the interim report endorsed by the European Council (see EUROPE 9623), the new report served as the basis of discussion by finance ministers and governors of EU central banks at a meeting in Brdo, Slovenia, on Friday on the subject of financial stability.
The EFC is still strongly calling for full, rapid disclosure by financial institutions of their losses and exposure to asset depreciation due to the financial crisis. It lists work currently under way on the four sections of the roadmap on financial stability adopted in October 2007 by the ECOFIN Council (see EUROPE 9519). On transparency, the Committee of European Banking Supervisors (CEBS) noted huge differences in the financial documents of international banks in terms of both presentation and content. Information on risk management is targetted, for example, particularly in situations of stress on the markets, and exposure to complex financial products. Policy guidelines on this issue will not be published before a further study is completed, expected at the end of June 2008. The banking and securisation industry has produced some initial proposals in the field of structured credit products. Finalised in June, the proposals concern the submission of more detailed information on exposure to securisation in the context of the Basel II Directive on own resources directive. A public debate is under way about asset assessment, including non-liquid assets. Supervisors and bodies charged with drawing up accounting standards should ensure that the regulatory framework works in an appropriate manner and the accountancy rules in force are respected, argues the EFC. The Commission will submit to it a progress report on international efforts in this connection in the summer of 2008. The third area of work is on prudential rules and risk management in the financial services sector. The Committee of European Securities Regulators (CESR) is analysing the systems set up by investment funds to calculate risk. The European Commission's preparatory work, which will lead to a revision of the Basel II Directive in October 2008, is progressing apace. It covers the six areas identified by EU Internal Market Commissioner Charlie McCreevy when he addressed MEPs last Tuesday (see EUROPE 9634). The EFC believes it is crucial to draw up rules to ensure a robust system of managing the risk of accumulating large-scale exposure, revising the processing of hybrid capital by making the prudential securisation rules stricter. Focussing on banks' calculation and management of liquidity risk, the Basel Committee will issue recommendations in September at the earliest that may be incorporated in the Basel II Directive. The CESR is examining the functioning of the wholesale, bond and derivative markets. Ratings agencies have announced measures to answer the criticisms levelled at them vis-à-vis the way they calculate risk and the transparency of their rating business and possible conflicts of interest that may arise form their commercial model. When the special reports by the CESR (mid-May) and the Financial Stability Forum) have been published, the European Commission will publish political conclusions (by July 2008).
Although noting rising tension on the international markets that they expect to continue throughout this year, the EFC remains pretty optimistic about the EU's capacity to resist the financial storm due to its solid economic fundamentals. The EFC has not yet found any proof of the credit crunch in the EU. The EFC therefore recommends a very tight follow-up of the situation on the money markets, bond and share markets; of the scale of losses in the banking and insurance industry; rising problems facing certain investment and speculative funds; and the situation facing monoline insurers. The IMF estimates that banking losses since the start of the crisis now totalled some 190 billion dollars. (M.B.)