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ECON considered the draft report on credit rating agencies prepared by rapporteur Jean-Paul Gauzès, and held its monetary dialogue with ECB President Jean-Claude Trichet.
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Monetary Dialogue – Speech Trichet
Credit Rating Agencies – Draft report
Monetary dialogue with ECB President Jean-Claude Trichet
“I consider that the fragility of the global financial system, by which I mean its lack of sufficient resilience that has been revealed in the course of the present episode of turbulences, is not acceptable”, ECB President Trichet said in his speech before the EP ECON Committee.
“We must draw on all the lessons of the crisis, without any complacency, considering that all the elements of the system must be significantly improved: the quality of risk management, liquidity management and the overall resilience of private institutions, the transparency of the financial markets, and the clarity of financial instruments.”
What we now need is strategic lucidity and, where appropriate, a great deal of political energy to counter considerable vested interests, Trichet said. However, we also need sound macro-economic policies that avoid the creation of the large domestic and external imbalances, he underlined.
With regard to the institutional set-up, Trichet favours a strengthening of the informal groupings, in particular the FSF and the G20. “The FSF is unique in that it links all the authorities and institutions that have a systemic influence on financial markets, which are very largely decentralised and – for many of them – independent from the political sphere”, Trichet said.
Also, the governance of the international financial institutions, particularly the IMF but also the World Bank, should become more effective and representative, he said.
“The financial crisis has heightened the importance of addressing issues relating to financial supervision in a comprehensive and co-ordinated manner, both globally and at the European level”, Trichet said and underlined the need to analyse long-term solutions to the structure of supervision. “To that end the proposals, which will be put forward by the High-Level Group chaired by Jacques de Larosière, will represent an important contribution to the policy discussions.”
“Reflections have started on the specific role that could be played by the ECB and its Governing Council”, he said. However, the Governing Council has not yet taken a position on this topic.
MEPs concentrated, among others, on the need for better supervision of financial markets.
Eoin Ryan asked whether time was right to enlarge the Central Bank's mandate, providing it with more instruments to stimulate the economy. Mr Trichet recalled that a close relationship between the central bank and the banking surveillance authority was of the essence. He also reminded MEPs on article 105.6 of the EU Treaty which explicitly mentions the possibility for the member states to decide to confer upon the ECB specific tasks in the domain of financial supervision.
"The great advantage is that it is already ratified”, Trichet underlined. “There is an ex-ante ratification that has already been done”. "I stand ready”, the ECB President said. However, there is currently no position of the Governing Council. "We always said at the level of the Governing Council of the ECB that we trusted that a close relationship between the central bank and the banking surveillance authority was of the essence", he continued.
Questioned by Kurt-Joachim Lauk about the concept of a Bad Bank and the problems in the derivative markets, Trichet said that he thinks “the concept of a global bad bank is not an appropriate concept”. However, he backs the concept of a central counterparty concept in the derivatives market.
Ieke van den Burg criticised that the FSF alone would be too much concentrated on the banking sector. But new supervisory structures and arrangements should also include the other sectors such as securities and insurance. However, Trichet reiterated that the FSF represents an informal grouping with the relevant degree of independence that will be “able to identify the appropriate avenue”.
Responding to Margarita Starkeviciute on the restructuring of financial marklets, and in particular the banking sector, Trichet said, that “we need to find out very bold ways to ensure that market economies are not that fragile”. The seperation between investment banks and commercial banks was not appropriate at all, he said. However, the ECB has not yet reached a final position.
The Committee considered the draft report on credit rating agencies prepared by Jean-Paul Gauzes.
To avoid inefficiencies among regulars in Europe, Mr Gauzes intends to intensively increase the role of CESR by centralizing the registration and regulation of CRAs with the Committee. This should also prevent ‘regulatory dumping practices’ and will make regulatory shopping in EU member states more difficult, he said presenting the report in ECON.
Also, Mr Gauzes does not want to limit the regulation on the rating alone, but on all business sectors CRAs offer, he said. He proposes that CESR should monitor the past performances of credit rating agencies and should publish its finding.
The Commission is also called to assess the regulator reliance on credit ratings as well as the appropriateness of the remuneration of the credit rating agency by the rated entity.
On the difficult issue of products located in third countries, Mr Gauzes proposes a ‘guarantee concept’ for third countries ratings from outside the EU. “Ratings of entities or products located in a third country issued by credit rating agencies that are established in a third country may, however, be used within the Community on condition that those ratings are confirmed by a credit rating agency established in the Community and registered in accordance with this regulation”, one of his amendments to the Commission text states.
However, he does not advocate an official European rating agency, but member states shall ensure that issuers use credit rating agencies that have their head office in the Community for some of their ratings.
Discussion in Committee
MEPs widely agreed to intensify the supervision of CRAs and more coherence, possibly by increasing the role of CESR. However, the jury is still out if some kind of liability concept should be introduced.
Wolf Klinz (ALDE/DE) welcomed the report and agreed with the rapporteur in rejecting the idea of a public rating agency. However, he criticised that the proposed guarantee concept is still too complicated. Mr Klinz also agreed with the increasing role of CESR but reminds that the outcome of the de Larosière Group report, expected by the end of February, has to be taken into account. It also has to be carefully considered if the concept of rotation is really sensible. He finally indicated that some kind of liability concept might be introduced.
Sharon Bowles (ALDE/UK) also confirmed the intention to better centralize the supervision and supported the idea of having a central point of contact. However, if that is in the form of CESR or though “more centralized colleges” is yet undecided, she said.
Kurt-Joachim Lauk (EPP/DE) underlined that the business model of CRAs is no longer feasible. He also reminded that the de Larosière Group is currently discussing the option of rating the issuers only, instead of single products. He agreed with the concept of a single supervisory entity, although this must not necessarily be CESR. He proposed to integrate a ‘sunset clause’ to keep the possibility of adopting a probably better fitting international regulation. With regard to the liability issue, he has in mind some form similar to the liability of auditors.
Pervenche Beres (PES/FR) underlined that Europe needs to have an independent own opinion and a clarified EU position. She reminded that a rating is more than the expression of an opinion. The rating process is more a public responsibility, she said, and advocated a public rating agency. She was supported by Daniel Daianu (ALDE/RO) stressed also the "public good provider" nature of big rating agencies, who have to be regulated, and called for a EU rating agency. Ieke van den Burg (PES/NL), however, said that as there are international markets she has no preference to any rating, be it US, EU or any other.
Speaking for the European Commission Maria Velentza reminded that a public rating agency is not intended in the Commission proposal. With regard to supervisory aspects the Commission’s work is not yet finalized, she said, and the proposal presents more a short-term solution. Also, the report of the de Larosière Group has to be included. In the longer run however, a stronger centralization of supervision has to be considered.
See also the presentation of Mrs Schapiro, nominated chair of the SEC.
Timeline:
Deadline for amendments: 10 February
Discussion of amendments: 9 March
Vote in Committee: 23 March
Documents:
Draft report attached below
Call for EU legislation to encourage micro-credit schemes
ECON is calling for the Commission to propose legislation on micro-credit schemes in Europe. The report of Zsolt László Becsey (EPP/HU) calls for the Commission to present a legislative proposal to bring together different measures in a framework to encourage microcredit's development in Europe.
MEPs want to ensure that neither money laundering nor competition rules inhibit the development of micro-credit provision. They add that it should be possible for public procurement procedures to give preferential treatment to goods and services provided by micro-credit borrowers.
There needs to be an EU-wide regulatory framework for non-bank providers of micro-credit, defining them as non-deposit takers, with the ability to conduct credit-only activities and to on-lend. There should be harmonised, risk-based rules on authorisation and supervision.
The report was approved by the committee under Rule 39