30 April 2008

Lamfalussy follow-up: future structure of supervision

ECON presented a working paper on the future structure of supervision in Europe prepared by Ieke Van Den Burg and Daniel Dăianu. The rapporteurs call on the Commission to screen the existing regulatory, supervisory and crisis management framework in the light of the identified failures and announce some 13 issues to which policy responses have to be formulated.

ECON presented a working paper on the future structure of supervision in Europe. The document was prepared by Ieke Van Den Burg (PSE/NL) and Daniel Dăianu (ALDE/RO). The rapporteurs call on the Commission to screen the existing regulatory, supervisory and crisis management framework in the light of the identified failures.

 

The documents states that with regard to the financial crises, supervisors and regulators have underestimated or overlooked the important financial stability implications, which adverse market conditions could trigger.

 

They have also poorly understood the flaws and implications of the “originate and distribute model” of securities, which was practiced by major banks, the paper states. Furthermore, the crisis was compounded by non regulated and unsupervised markets as well as off-balance sheet arrangements, special purpose vehicles and opaque and non- transparent OTC derivatives markets. These did not mitigate the risk but, in stress conditions, turned into major hubs where counterparty risk concentrated.

 

The rapporteurs announce some 13 issues to which policy responses have to be formulated. These include the tools to manage new sources of systemic risk, as well as the link between regulation and supervision.

 

Further issues include accounting rules, transparency on the OTC derivatives markets, the securitization model, the ‘public utility’ role of credit rating agencies and deposit guarantee schemes

 

Finally, the rapporteurs outline 5 options for reforming the EU supervisory framework, as there are:

 

- Improvements within the present fragmented structure which leaves the 3L3 committees’ advisory status, competences, instruments and working methods untouched or only slightly modified.

 

- Transforming the 3L3 Committees into European regulatory agencies, which raises practical questions such as how such a reform could be institutionalised.

 

- A European System of supervisors with a two-tier supervisory system to create a pan-European structure for prudential supervision of the major cross-border financial groups.

 

- A Single European Supervisor that would be covering all financial services sectors.

 

- An EU Financial Oversight Authority equivalent to the situation in the US.

 

Report

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