Brussels, 27/01/2009 (Agence Europe) - Far from having shown all its different facets, the international financial crisis, is now affecting entire sectors of the world economic but is allowing for a first lesson to be drawn: without public intervention as guarantor of last resort to the financial institution in defining the rules of the game, the financial system is incapable of surmounting the crisis of confidence now confronting it. On Tuesday 27 January at the 7th conference on financial services organised by the Europe Forum in Brussels, Jörg Asmussen, the German secretary of state for finance declared, “self-regulation alone is not sufficient to guarantee global financial stability. The community of states has to give principles to market reform. Set up, monitor and enforcement is key”. He explained that the were entering unchartered territory and they first of all had to stabilise the markets and then tackle less urgent things like the problems of competition posed by banking rescue plans. He also said that they should prepare against any excessive use of regulatory capacity to prevent new crises.
The European Commission is taking note: the financial crisis changed the deal and all players displaying potentially systemic risk will have to find their place in the regulatory arena. For the first time, Charlie McCreevy admitted that at the end of the consultations process on hedge funds and private equity funds, “the Commission will prepare appropriate regulatory initiatives”. After having always advocated a principle of minimum regulation, the European Commissioner for the internal market surrendered on this point to pressure from the European Parliament (in particular) (EUROPE 9819). David Wright, the Deputy Director General for financial services at the Commission said that no financial market could function “with a tsunami” of destabilising factors. He listed the European routes for which a political agreement is expected to be obtained by April: the “Solvability II directive in the insurance sector (EUROPE 9787), the regulation governing the activities of the financial rating agencies (EUROPE 9821). Klara Hajkova, the deputy finance minister explained that this is the Czech presidency's objective, which in addition to these two goals, also wants to finalise revision of Community governance on capital requirements (Basle II directive) for the banks.
Mr McCreevy hopes that inter-institutional negotiations will not water down the objective in the proposal on own-fund requirements for lending institutions. He also indicated that the revision currently on the table constituted, “the beginning of a far broader compensation review of the entire Basel 2 Agreement, which clearly requires some fundamental overhaul”. He identified the following weaknesses: the absence of any overall gearing cap on bank balance sheets, wholly inadequate risk assessments for AA rates structured products, the stupidities of intellectually refined value at risk models, over-reliance on External Credit Rating assessments undertaken by agencies and the absurdities of some mark to market requirements when markets are totally illiquid. The Commissioner also confirmed that his services were preparing a revision of the recommendation on the pay for company directors in an effort to reduce excessive risk taking. As for the derivatives markets, the option of a legislative initiative is on the table and might be included into the ongoing revisions for Basel II. At the end of 2008, the industry was unable to agree on a road map for creating compensation platforms for this kind of market.
Supervision. Supervision, especially that for cross-border financial institutions has been the subject of much debate. The financial crisis is also a crisis of confidence in supervisors as far as the most serious problems arose in the regulated sectors, explained Alberto Giovannini president of Unifortune. According to Mr Wymeersch, the president of the Committee of Securities Regulators (CESR), the European idea has suffered a lot to the advantage of national interests. He noted the “cacophony” created by national sales measures. He deplored the absence of standardisation powers at CESR and appealed for European supervising or standards that were more centralised but where control stayed local. He said that CESR members did not support the idea of a European agency and affirmed that it would be better to base themselves on the banking control model in the European central banks system. At the end of February, the “Larosière” experts group is expected to submit conclusions on revising the supervisory architecture in Europe. These conclusions will be followed at the beginning of March with a Commission communication, in time for the Spring European Council. Ieke van den Burg MEP (PES, Netherlands) expressed a fear that the scale of reforms would fall after the Spring European Council and at the time of the EP and Commission renewals in 2009. (M.B/trans/tfl)