The financial crisis has served as a rough reminder that, although financial integration improves access to financial markets and opportunities for risk diversification, it may also increase the scope for financial contagion across countries.
Jose Manuel González-Páramo set out the following policy responses to increased international financial integration:
· The G20 has forcefully taken the leadership in advancing the agenda for reforming the international regulatory and supervisory framework. In an unprecedented way, the G20 has become the global forum for international coordination and has agreed on a broad set of measures to be followed by national authorities and international standard-setters.
· The Financial Stability Board (FSB) has been entrusted with the task of overseeing concrete regulatory steps and monitoring the implementation of the reform agenda.
· The participation of the main international fora and institutions - the International Monetary Fund (IMF), the Bank of International Settlements (BIS) and the International Organization of Securities Commissions (IOSCO) - in the FSB is also proving instrumental in ensuring cross-sectoral coordination.
· The Basel Committee of Banking Supervision (BCBS) has agreed on a package of measures which aim at increasing the resilience, safety and soundness of the banking system in a way that is consistent with long-term economic growth, without hampering the functioning of the market and the pending economic recovery.
· The ECOFIN roadmap is an ambitious set of policy priorities adopted by the Council in the wake of the financial crisis, with the aim of strengthening financial supervision and regulation in the EU.
· The European Systemic Risk Board (ESRB) will be in charge of macro-prudential surveillance. Its task will be to identify and assess risks to the stability of the EU financial system and issue risk warnings when the identified risks appear to be significant. When appropriate, the ESRB might complement its risk warnings with policy recommendations for remedial action.
· The ECB will provide analytical, statistical, administrative and logistical support to the ESRB. In particular, the ECB will assist the ESRB in the development and collection of new statistical data. The ECB will also assist the ESRB by developing and maintaining new analytical tools and methodologies for the identification and assessment of systemic risks and the issuance of risk warnings. This task poses significant challenges because it requires special skills and the further development of analytical tools. Models must be developed to help structure and analyse the vast amount of information collected for risk assessment. As financial stability and macro-prudential analyses are at a relatively early stage, it is advisable to employ a multiplicity of approaches.
In conclusion, Mr González-Páramo said that “The financial crisis has been a rough reminder that, although financial integration improves the access to financial markets and the opportunities for risk diversification, it may also increase the scope for financial contagion across countries. It is therefore paramount that the financial stability arrangements keep pace with the degree of financial integration. Such arrangements should be particularly ambitious in the EU and the euro area, which are characterised by a very high degree of financial integration. This is why it is important that we fully and quickly implement the reforms of the European and international supervisory and regulatory framework which are needed to enhance the robustness of our financial systems.”
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