Some of the former fundamental assumptions about the world of finance were too simplistic and wrong, Barnier said and called for a new order in financial services.The EC will issue proposals on liquidity management and leverage ratios by the end of 2010.
Speaking at a conference in Brussels, Commissioner Barnier said that the crisis has forced policy makers to reconsider the following fundamental assumptions about the world of finance:
· First, a common assumption was that markets – when left to themselves - act rationally.
· Second, that financial innovation is always useful and generates profit.
· Third, that transparency is not that important.
· And that the right answer to jobs and growth was a complete "laissez faire".
He highlighted that those assumptions were too simplistic and wrong.
There is now an urgent need on the following issues:
· Prudential reforms: Improved supervision. Changes to capital and liquidity requirements to reduce the likelihood of banking failure.
· To deal with large systemically important banks. Action to reduce or manage the complexity of the financial sector.
· To change the culture of governance. Better corporate governance is needed and more transparency. Better risk management – within companies first. But also more effective external checks and controls.
On supervision, the target date to put in place a new framework of European Supervisory Authorities for banking, insurance and securities is 1st January 2011. Time is running out.
On CRD IV he said that the EC is carefully looking at nearly 150 replies to the CRD IV consultation. The EC will make the necessary proposals by the end of the year taking into account liquidity management, leverage ratios, and pro-cyclicality.
He concluded by saying that the biggest challenge you and I face is restoring citizens' trust in the financial sector. There are already strong tendencies of populism and protectionism.”
© European Commission
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