The paper concludes that the EU supervisory reform will only be possible to evaluate it on the basis of its practice. The whole process should be regarded as institutional building; success is difficult and should not be taken for granted.
Within the context of the Global Crisis, this paper examines the ongoing policy challenges in establishing a European framework for financial regulation and supervision. The paper takes into account the evidence provided during the crisis of pervasive spillover effects and cross-country interdependence.
Some reflections on the on-going process of institutional change in financial regulation and supervision in Europe are also given. The legislation proposes the establishment of two new bodies at the European level. First, at the macro-prudential level, the legislation would establish the European Systemic Risk Board with the responsibility for identifying and assessing EU systemic risks and vulnerabilities. Second, at the micro-prudential level, the legislation would establish a new European System of Financial Supervision comprised of three separate supervisory authorities to oversee institutions providing banking, securities, and insurance and pension financial services.
The reform of European financial supervision and regulations starts a process. It will evolve over time and it will only be possible to evaluate it on the basis of its practice. The whole process should be regarded as institutional building. Success is difficult and should not be taken for granted.
Crucial tests include:
· First, the production and sharing of crucial information;
· Second, the timeliness and effectiveness of preventive steps including more effective market regulation and institutional supervision; and,
· Third, the effectiveness of crisis management and resolution procedures.
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