10 July 2002

EP: Public Hearing on Supervision after Enron

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The overall consensus among the European Parliament experts was to make more use of the existing European structure of supervisory bodies and enhance their effectiveness rather than create new structures and legislation. The prudential supervision role of national central banks and especially the European Central Bank is still unclear and a consensus has not been found.

Karel Lannoo Centre for European Policy Studies that prudential supervision in Europe worked quite he no need to transfer this role from the private sector to the State as a of recent failures in the US. He argued that the differences between the bank-based EU market and the market-based US market demanded a different focus on supervision. In the US, controls were directed towards the banking sector rather than the markets, in view of the fact that the European bond and equity market was much smaller than in the United States. Although the systems in Europe varied from country to country he did not urge the imposition of another layer of regulation. What was important, he said, was for authorities in Europe to co-operate closely on the basis of a minimum level of harmonisation, with a structure that was clearly accountable to EU ministers through ECOFIN and the European Parliament. He didn’t think there was a need to create new Committees as enough exist already, but it might be a good idea to strengthen their hierarchy to enhance their functioning. In contrast, a stronger role for a supervisory body might lead to moral hazard problems. One issue remained to be settled, that of the role of the European Central Bank in supervision, an issue taken up by several other speakers.

Henk Brouwer, Executive Director of De Nederlandsche Bank, also recommended closer co-operation between European supervisors, and a more international approach to regulation and supervision through the Basle Committee. He thought structures in Europe were satisfactory serious gaps in banking supervision did not exist. He argued that central banks should be involved in prudential supervision, as there are close links between central banks and overall financial stability through various channels. At a European level it was necessary to ensure respect for with regulation and supervision carried out under national frameworks.

Howard Davies, Chairman of the UK's Financial Services Authority, claimed that a single national supervisory authority offered cost effectiveness, flexibility and the ability to focus resources. It would be premature to set up a single European authority. He acknowledged that there was a gap as far as re-insurance was concerned. He said the FSA met regularly with officials from the Treasury and the Bank of England to discuss possible threats to the markets, although he felt the central bank should not be involved in supervision on a daily basis. A single regularity authority also facilitated co-operation with other European bodies, although he was hesitant to recommend the model to other countries. Mr Davis pointed out the differences especially between the UK and other EU markets and was quite positive abouton creating new committees forin the banking and insurance sector. Closer European co-operation

Looking at the supervision of the insurance sector in France, Mrs Florence Lustman, Secretary of the Commission de Controle des Assurances (CCA), explained that the aim was to regulate the industry 'a posteriori' rather than interfere in prior approval of contracts. The industry had faced particular problems following the storms in 1999 and the events of 11 September last year.Because of this, it was important to ensure adequate assets to cover liabilities and this was the aim of the regulation of the sector in France. She emphasised the need for co-operation to deal with issues such as money laundering and terrorism and called for a flexible approach.

Edgar Meister, Member of the Executive Board of the Deutsche Bundesbank, pointed out that the situation in Europe had changed with higher risks following the introduction of the euro and emphasised the need for close cooperation at a European level, rather than introducing any new structures. He also felt that it was important to involve central banks and strongly supported working through the Basle Committee to establish acceptable rules on capital adequacy.

Mr Tommaso Padoa-Schioppa, Member of the Executive Board of the European Central Bank (ECB), pointed out that new legislation in the financial services area should be valid for a 10 year period. It was important to focus on closer cross-border co-operation and effective enforcement of the rules. He also felt there should be flexibility in implementing the Lamfalussy procedures, especially with regard to primary and secondary legislation.

Professor Dos Santos, Chairman of the Portuguese Commissaao do Mercado de Valores Mobiliarios, said that self-regulation was not sufficient, and the role of auditors needed review. He urged an update to company law in the EU, to ensure stronger consumer protection. He felt there was the need for more transparency with regard to holding companies. Turning to the question of Enron itself, he felt that this was clearly a case of fraud and that, therefore, blame should not be attributed to rating agencies, although he recognised the need for clarification with regard to the provision of sensitive information to rating agencies to guard against market abuse.

Link to position papers of experts
Working Document of Ieke van den Burg on prudential supervision

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