09 October 2008

Plenary Meeting 8-9 October

Palirament voted ton the report on future structure of supervision in Europe. In a debate with the Commission and the Council MEPs called on the EU for coordinated action to tackle the financial market crisis.

Parliament held a debate on the financial crises and adopted the report on the future structre of supervision in Europe.

 

Debate on financial crisis

MEPs called on the EU for coordinated action to tackle the financial market crisis, and unilateral steps which cause problems for their neighbours, should be avoided. Most groups welcomed the Commission's plans for a high-level group to consider market supervision policies, though some complained that not enough had been done in the past.

 

Speaking for the Council French European Affairs Minister Jean-Pierre Jouyet said that "European co-ordination was a practical reality." Banks, regulators and the European Commission were all working together. However, the EU is not a federal state comparable to the US, he said.

 

In particular, Mr Jouyet welcomed the UK measures announced yesterday and called on the Commission to show some flexibility as regards EU state-aid and competition rules. He also called on the IMF to act as a real ‘financial policeman’.

 

Commission President Manuel Barroso reminded that Europe already has the rules it needs to tackle the financial market crisis in a European way. However, it will be a severe test of its ability to co-ordinate effectively and act quickly, he said. Public intervention mostly takes place at national level because that's where the money and expertise are, but Member States must act on common principles, so as to take account of the cross-border effects of rescue operations, he added.

 

The Commission proposals on capital requirements, credit rating agencies and executive pay would help to build confidence, he said, but Member States must show their resolution to act quickly. Meanwhile, the Commission is setting up a high-level group, chaired by former IMF Director-General Jacques de Larosière, to reflect on how Europe's financial market supervisory architecture can be made to fit its needs.

 

Europe must pool its efforts to minimise the impact on its economies and firms Joseph Daul (EPP, FR) said speakinig for his group. Particularly small and medium-sized enterprises need support measures, he said. Financial markets are not working properly, credit rating agencies are not able to publish figures showing true levels of solvency, and it is "unacceptable" that the people who brought banks to their knees are not held to account, he stressed.

 

Speaking for the PES group Martin SCHULZ (PES, DE) welcomed the the high-level steering group announced by Mr Barroso. However, he criticized the appointment of Commissioner McCreevy as he is an “apologist for untrammelled market capitalism". This would the "arsonist taking over the fire brigade", he said, adding that Ms Kroes "wants to do away with public savings banks".

 

"We have been hearing for years that the market will sort it out", but "the neo-liberal mainstream has just collapsed in a heap", he continued, stressing the need to think hard about appropriate rules for the new architecture, and suggesting that some forms of speculation should be prohibited by law.

 

Graham Watson (ALDE, UK) for the ALDE group said that a situation in which Member States surprise one another with unilateral decisions with multilateral implications cannot be sustained. “Europe needs coordinated and consistent policies to stem the flow of financial losses, to establish transparency and good practice and to prevent future woes".

 

What we witness is not the failure of the market economy but rather it is the excesses of unfettered, ineffectively regulated markets, he said. Financial markets currently owe less to Adam Smith than to Cincinnati Kid. The greed of individual bankers, traders and short-sellers is certainly to blame, but so too is the failure of governments to ensure transparency and honesty in their dealings.

 

“We also need to strengthen the links between national financial regulators”, he said.

 

Lamfalussy follow up - Future structure of supervision

Parliament adopted the report on the future structure of supervision prepared by Ieke van den Burg (PES/NL) and Daniel Daianu (ALDE/ROM). The report was subject to some oral amendments posed by the rapporteurs taking into account the very latest developments in the financial markets, as for example to strengthen deposit guarantee schemes on a European basis.

 

In a discussion with Parliament Commissioner McCreevy reminded MEPs on the difficulty to find a common approach to react to the financial crises in Europe. We are not a Federation like the US, he said reacting to the demands of a European supervisory structure. The problem is that member states don’t want European solutions on the crises, he said and referred to the Council discussions on group supervision within the Solvency II proposal.

 

Supervision
MEPs argue that voluntary arrangements are insufficient to streamline the fragmented structure of European supervisors that need to guarantee the stability of the financial markets and protect the real economy against excessive risks. The Level 3 committees need a legal status commensurate with their duties, and national supervisors should have a commitment to executing the decisions of the committees written into their mandates.

 

MEPs stressed the need to have a structure at EU level that would be legally empowered to break deadlocks and solve conflicts between national and sectoral supervisors. This structure should be an "add on" to the existing network of the light coordination structure of national supervisors in the banking, insurance and securities market. It should contain an independent chair and vice chair, that together with the three chairs of those committees on the coordination of national supervisors (for banking, insurance/pensions and securities) would form a sort of "appeal body" and a coordinating structure that could hugely improve the effectiveness and rapidity of action in crisis situations. 

 

MEPs encourage the Level 3 Committees to work towards better cross-sector and cross-border integration and coordination. Parliament says that colleges of supervisors dealing with cross-border institutions should become mandatory with a fairly fixed division of competences and a system of qualified majority voting between the supervisors which enables them to make decisions.

 

The plenary agreed on an indication of what could be the key parameters for qualified majority voting inside the European supervisors committees. Not only the size of the Member State and the financial group's headquarters should count, but also the systemic importance of the activities of that group for a member State where it has branches or subsidiaries.

 

Role of the ECSB and international representation

Micro- and macro-prudential and market supervisors should combine their knowledge of developments in the market. The European System of Central Banks would get a central position to coordinate and to take leadership if necessary.

 

The division of information and tasks should also be streamlined to improve the voice of the European Union at international level, says the report.  The EU should have a clear voice in international bodies including the Financial Stability Forum.

 

Transparency: securitisation, complex financial products and rating agencies

The report calls for measures to make the securitisation process more transparent and for credit rating agencies to use appropriate terminology making clear the difference between complex financial products.  It says companies should not be able artificially to keep debt vehicles off their balance sheets.

 

Originators of securitised products should be required to assess and monitor risk and ensure debt-backed securities are transparent enough for investors to be able to understand the risks they are taking on. 

 

More transparency is also required when it comes to the over-the-counter markets, where clearing houses should be encouraged.

 

MEPs want to see lessons learned from the oversight of auditors to be applied to credit rating agencies, notably when it comes to conflicts of interest.

 

Deposit guarantee schemes

MEPs urge the Commission to ensure that deposit guarantees are urgently revised to avoid arbitrage between guarantee levels in Member States that may further increase volatility and undermine financial stability instead of increasing security and depositors' confidence. Moreover, the level of refund should be significantly increased and the availability of refunds to retail clients in case of failing financial institutions should be assured within a reasonable timeframe including cross-border situations.

 

Remuneration disclosed and assessed for risk

Financial institutions should disclose their remuneration policy, notably including the packages offer to directors – and market supervisors should assess whether the remuneration policy encourages extreme risk taking when they examine a company’s risk management.

Speech McCreevy

Final report as adopted