Brussels, 15/09/2008 (Agence Europe) - EU Finance Ministers, meeting informally in Nice on 12 and 13 September, reviewed work on financial stability carried out as part of the road map they adopted in October 2007 (see EUROPE 9660 and 9559). They reached agreement inter alia on principles that will act as guidelines for the development of the supervisory framework for cross-border financial institutions. This was a very pressing issue since, this Monday, the financial crisis claimed further victims in the United States (bankruptcy of business bank Lehman Brothers, acquisition of Merril Lynch by the Bank of America and massive raising of funds by insurer AIG).
“We have to treat the disease at the root” and restore financial stability by taking all the measures that we can to restore normal functioning of the markets, said Ecofin Council President in office Christine Lagarde following the meeting. She drew attention to the decisions taken by ministers in July: compulsory registration of credit rating agencies in the EU (see EUROPE 9698), 100 days for banks to bring clarity to the questionable financial products which were at the root of the financial crisis. “80% of the 22 biggest banks have provided the information required,” Lagarde said, and she hoped that this figure would rise to 100% and, thus, improve the quality of the information submitted. The data also had to be comparable. Today, when a bank is established throughout the EU, it has to provide national supervisors with “18 different sets of accounts,” said French Finance Minister Lagarde. That is why ministers wanted to agree on a single reporting system by 2012. Ministers also want to improve the evaluation of a financial institution's assets, particularly in times of stress on the markets. They agreed to set up a working group on “pro-cyclicality” to report before the end of the year. The Basel II directive makes own fund requirements on banks more sensitive to borrowers' credit risks. With these requirements increasing in the event of economic slow-down, it can bear on banks' ability to finance the economy and, so, aggravate the economic situation. ECB President Jean-Claudse Trichet wanted further discussion on “the theme of pro-cyclicality in order to avoid everything that can amplify fluctuations in our financial and economic system”.
Supervision. On supervision of cross-border financial groups, ministers set out the principles which will guide them in the talks on the Solvency II directive on the activities of European insurers and which the Commission will have to take into account in preparing its proposal for the review of the Basel II directive. Among these principles are: setting up colleges bringing together the supervisor of the member state where the group has its headquarters (“home supervisor”) and the supervisors of the countries where the group is active (“host supervisors”); giving the home supervisor the leading role in decision making at group level (validation of internal models, imposition of further requirements on own funds); introducing within the colleges an information sharing mechanism aimed at host supervisors; giving the role of mediator to the three European regulators' committees in the event of conflict within a college; setting up mechanisms allowing supervisors to react and cooperate to prevent a crisis. Economic and Monetary Affairs Commissioner Joaquin Almunia said that these principles were valid for both the banking and insurance sectors. All that would exchange would be how they were applied. Trichet called for “identical and perfectly coordinated” application of these principles “on both sides of the Atlantic”.
“Unified supervision would mean a more effective and more solid financial sector,” opined Lagarde. Member states must bring a European dimension to the mandate of their national supervisory authorities. The decisions of the three European committees will no longer have to be unanimous, hitherto a qualified majority decision will suffice. On the supervision of cross-border players, Lagarde felt that “there has to be a pilot on board the plane” - in the event, the monitoring authority of the country where the group has its headquarters. In order to reassure member states, particularly those from Eastern Europe, whose banking and insurance markets are dominated by groups from the old 15 member states, “a good balance” of responsibilities and “good information sharing” are needed, she added. (M.B./transl.rt)