02 April 2008

McCreevy outlines policy response to financial turmoil

Commissioner McCreevy disclosed the Commission proposals for changes to the CRD and the strengthening of supervisory convergence to be presented at the informal ECOFIN meeting in Slovenia.

Speaking before the EP ECON Committee McCreevy said that the proposal is envisaged to the adopted by early autumn with a view to come to an agreement by April 2009.

Capital Requirements Directive

Proposals for changes to the CRD will include:

- new rules to limit the risk stemming from large exposures,

- a harmonisation of the definition of hybrid capital,

- capital requirements for default risk in the trading book,

- a definition of the significance of risk transfer,

- technical changes to the securitisation framework,

- a series of changes to ease the administrative burden.

Further timetables:

- On enhancing transparency for investors, markets and regulators, the industry should bring forward complete data on markets for structured products by mid June.

- The IASB will present a discussion paper on improving valuation standards, in particular for illiquid assets including considerations on fair value measurement this month. In May, a IOSCO task will also present its findings.

On improving the market's functioning and its incentives structure the Commission should finalize its assessment before the summer break.

Finally, on fair value and mark to market measurements, the Commissioner noted that “there are some real accounting issues and anomalies to examine, such as the consolidation of special purpose entities or the measurement and information disclosed on risk exposures.”

Lamfalussy and supervisory convergence

“One of the most urgent tasks is to clarify and strengthen the role of the Level 3 Committees”, McCreevy said. The Commission has developed four options to improve and strengthen the EU toolbox for the supervision of financial groups, whereby he would favour the third option.

These 4 options include:

- to simply give the Level 3 Committees a set of minimum, general responsibilities in the area of supervisory cooperation and convergence. This would be achieved by aligning the Commission Decisions which created the Level 3 Committees.

- to modify the Commission Decisions in order to include an indicative (i.e. non-exhaustive and flexible) list of activities that the Level 3 Committees should perform to foster greater supervisory cooperation and convergence.

- to combine option 2, where necessary, with some targeted modifications to the relevant level 1 directives.

- co-legislators would create European regulatory agencies, which would replace the Level 3 Committees. Under this scenario, these agencies could adopt individual technical decisions applicable to market participants.

Full speech

The full report on the ECON discussion can be viewed here (forthcoming)

© Graham Bishop