CEPS paper on comparing EU and US responses to the financial crisis
11 January 2010
Karel Lanoo, Chief Executive of CEPS, writes that on the institutional side, the EU and the US seem to be moving in radically different directions, with (most likely) reduced powers for the Fed. However, on the regulatory side both blocs have recently started to converge as in CRAs or AIFM.
Karel Lanno, Chief Executive of CEPS, writes that since 2003, the EU and the US have conducted a vibrant regulatory dialogue on financial regulation, but domestic priorities seem to have taken precedence in response to the financial crisis. This ECMI Policy Brief compares the institutional and regulatory changes occurring on both sides of the Atlantic. On the institutional side, it compares macro- and micro-prudential reforms. On the regulatory side, it compares four key areas: bank capital requirements, reform of the OTC derivative markets, and the regulation of credit ratings agencies and hedge funds. It concludes with some implications for the regulatory dialogue.
The report concludes that:
On the institutional side, the EU and the US seem to be moving in radically different directions, with (most likely) reduced powers for the Fed in the US, and more for the ECB in Europe. The US Financial Services Oversight Council will be chaired by the Secretary of the Treasury, and composed of all regulators, including the Fed. The EU Systemic Risk Board, on the other hand, will be chaired by a central banker, most likely the ECB president, and largely composed of central bank representatives, with only one delegate from among the EU’s finance ministers. On the micro-prudential side, the EU is gradually moving towards a more integrated model of functional supervision, whereas the US proposals do not seem to go far enough at the present time.
On the regulatory side, where the EU was initially in the lead, both blocs have recently started to converge, with proposals on credit-rating agencies and hedge funds, largely as a result of initiatives in the US Congress. Hence, even if institutional responses differ, regulatory responses are more aligned. In addition, this process is now helped by G20 commitments.
The concern, however, is that parties may not grant and draft hedge funds directives, set tight conditions for third country access to the EU market, which have prompted certain groups to raise concerns about the competitiveness of the EU financial market. Interestingly, similar objections are heard in the US regarding Congress initiatives. The continuation of the dialogue, at all levels, is therefore necessary to ensure an unambiguous response to the crisis and to avoid unintended consequences. This is even more imperative in the G20 context, where the US and EU need to show their global partners that they are adopting similar solutions.
© CEPS - Centre for European Policy Studies
