The present financial crisis has enormous ramifications, with implications at national, European and global levels. The committee has been selective in the topics addressed in this report, limiting itself to the areas it judges of critical importance.
The present financial crisis has enormous ramifications, with implications at national, European and global levels. Therefore, in order to fulfil its mandate, the committee has set out to highlight important elements in each of these three dimensions. The challenge that it has faced is to avoid a trap, where the drive to disentangle and assess all of the ramifications of the crisis leads to a very thick report, preventing the reader from distinguishing the forest from the trees. Consequently, the committee has been selective in the topics addressed in this report, limiting itself to the areas it judges of critical importance.
The report analyses in detail the following three main areas:
- Global policy considerations
There is no doubt that excessive market liquidity materially contributed to market participants’ voracious appetite for risk which characterised those years. When markets are “awash with liquidity” the unbridled search for yield becomes a way of life.
The raison d’être of a financial system is to deal with imbalances (between savers and investors). Hence, one could ask how the existence of persistent current account "imbalances" provoked the biggest financial crisis in living history. The answer must lie in the massive, structural build-up of a mismatch between the supply and demand for assets.
It must be stressed that the emergence of excess liquidity and financial imbalances sketched above was no excuse for the managers of financial firms to forego thorough and continuous risk assessment.
Finally a question that naturally arises is why no warnings were issued concerning the risks that were continuing to accumulate. One might argue that the biggest "dog that did not bark" was the IMF.
- Europe’s financial markets in a global perspective
Concerning policy at the European level, many specific initiatives are currently under discussion, with the multiple aims of managing the financial crisis, preventing a similar crisis from re-occurring in the future, and protecting and improving the internal market for financial services. The Committee has nevertheless chosen to focus primarily on one overarching topic, which is of tremendous importance for the financial future of the European Union: namely, the design of a new European financial architecture as outlined in the so-called de Larosière report (DLR), submitted earlier this year.
The Committee judges that the DLR provides a good basis for solid progress towards a new European financial architecture. The proposals would indeed innovate by introducing a macro-prudential supervision component, which has been lacking until now and whose absence constitutes one of the main explanations for the failure to prevent the financial crisis.
- Policy implications of the financial crisis for the structure and functioning of the Belgian supervisory framework: towards a clearly reinforced cooperative model
Two of the four local giants, including the largest, are in process of becoming fully owned subsidiaries of foreign banking groups. The situation of the fourth is still evolving. This implies that for only one large, internationally active bank is it reasonably certain that the bank's headquarters will remain in Belgium.
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