Brussels, 03/11/2008 (Agence Europe) - The French Presidency has sent member states a few areas for reflection on the reform of the international financial structure, focusing on: - values and principles to guide the reform; - areas where international action is required, i.e. improving supervision of institutions, information on risks, enhancing the legitimacy of financial institutions, taking account of global challenges. The document, which speaks more of evolution than revolution of the existing architecture, will form the basis for discussion at the Ecofin Council on Tuesday, and then on Friday at the extraordinary European Summit. There will be no formal conclusions at the end of these meetings. The aim is simply to prepare the European position which will be presented on Saturday 15 November at the first international summit devoted to reform of the international financial system.
The European Union, which has led the way in taking urgent decisions to restore the European financial system to operation, must remain “active and ambitious”, in order to improve the financial structure, says the French Presidency. For this, the EU must devise “a joint position and approach” and contribute to the success of the Washington Summit with it adopting a first raft of concrete decisions and set “the right pace” for the forthcoming reform process. To what is the international financial crisis due? In the opinion of the French Presidency, the crisis is “macroeconomic”, in that it shows strong imbalances internally (heavy indebtedness, which has a leverage effect on the financial sector) and externally (inappropriate monetary exchange rates). It is also “a crisis of the regulatory and monitoring structure”, with the rules in place not being able to deal with the lack of discipline on the market, neither the short-termism of financial players nor the risks attached to excessive and blind confidence in market value accounting assessment.
In mid-November, international leaders are likely to commit to 11 points: - increase transparency on financial markets and take the necessary steps not to leave any financial institution, market or jurisdiction outside the scope of regulation or oversight; - submit rating agencies that provide public ratings to registration and to governance rulers and to appropriate monitoring of their activities; - draw up codes of conduct to address incentives to excessive risk taking, including through remuneration packages; - reconsider accounting and prudential standards to improve consistency; - harmonise capital definition to ensure a homogeneous quality of capital; - promote proper risk management incentives regarding securitisation, including considering the impact and effectiveness of requiring originators to retain a share of their issuances; - reinforce cross-border cooperation between supervisors and regulatory authorities, especially to oversee activities of cross-border groups (within the colleges of supervisors); - promote a change of culture in the governance of financial institutions towards sustainable value creation; - review improvements in liquidity risk management and promote a consistent approach for cross-border groups; - encourage an internationally coordinated response to the macroeconomic challenges to come; - formulate concrete solutions to improve international economic governance.
On improving supervision of financial markets, the French Presidency notes that, in some jurisdictions, some lending institutions, rating agencies and some investment funds, such as hedge funds, are not regulated. It believes that these players should come under closer supervision, including through requirements on registration and publication of information, but this enhanced supervision does not necessarily imply rules being drawn up. It also expects new proposals on the remuneration systems by December, in order to tackle excessive risk taking and bonuses for short-term profits. In order to compensate for the lack of information that would allow crises to be anticipated, the French authorities propose to set up, at international level, an information network and an early warning system for risks to macroeconomic and financial stability. In this would participate the IMF, supervisors, central banks, regulators, and standardisation organisations. A study is needed on innovative financial instruments, some of which help spread the financial crisis internationally from the United States. Suggestions were also made to enhance the roles of the IMF and the World Bank, and to reform the G8 with a view to further integration of emerging countries.
“What strikes me is the high level of agreement,” on reforming the international financial structure, said a European diplomat. In addition to the European countries that are members of the G20, also attending the summit in Washington will be the Czech Republic, since it will next hold the Presidency of the EU. Spain has stepped up its diplomatic moves to try to attend an event which it believes to be of the highest importance. (M.B./transl.rt)