06 February 2012

The EC published a booklet on restoring the health and stability of the EU financial sector

The financial crisis that started in 2007 is the worst Europe has faced since the 1930s. Originating primarily in the US subprime mortgage market, it proved to be highly contagious, spreading rapidly via the use of complex financial products.

The 2011 sovereign debt crisis is partly linked to the banking crisis but also has its own origins. It risks aggravating the position of the financial sector further. Financial institutions face funding difficulties due to uncertainties linked to their sovereign debt portfolio. Moreover, the real economy is being hit by public austerity programmes combined with a reluctance to lend by banks seeking to restructure their balance sheets.

Financial markets have been at the heart of these crises. They cannot remain the same. Inadequacies included regulatory gaps, inadequate supervision, poor corporate governance short-termism in financial institutions, in transparent markets and over-complex products such as derivatives.

The crisis is global and calls for an international response. The principal forum for a coordinated global approach is the G20, bringing together major advanced and emerging economies. Europe has played a key role in driving forward the global agenda, and is fully committed to implementing it.

In collaboration with its international partners, the Commission has been tackling the causes of the crisis through a comprehensive programme of financial regulatory reform, which is well on track towards completion.

The end of 2011 saw the establishment of a new European supervisory framework including legislation that tackles excessive volatility in markets. New rules will affect hedge funds, shortselling strategies and credit rating agencies. In 2011 alone, the Commission put forward 25 legislative proposals, including two very significant packages revamping the regulation of banks and capital markets.

Full paper

© European Commission