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Hopes that we had come through the worst of the turbulence before the summer have proved unfounded, Joaquín Almunia, Commissioner for Economic and Monetary Policy said. Several key credit markets remain disrupted and recently there has been a renewed flight to quality among investors accompanied by widening spreads between benchmark bond yields and yields on relatively risky investments.
His remarks came in the forefront of the Commissions’ updated forecasts to be published tomorrow. “Overall, the situation is unusually uncertain”, the Commissioner said, and “there is little sign that the functioning of interbank markets will return to normal in the near future.”
The financial sector stands at something of a cross roads and it is now imperative that we move forward. We must strengthen risk management and enhance the transparency that is so essential to restore market confidence. Despite several industry reports that have proposed self-regulatory approaches and best practices “we also need improvements in the regulatory and supervisory framework in certain areas”, Almunia said.
A final proposal on the revision of the Capital Requirements Directive will be issued at the beginning of October. It will address elements of the prudential treatment of the securitisation and credit risk transfer, as well as the large exposures regime and hybrid capital instruments, Almunia said. It will also take into account the current situation in financial markets and the risk that a pro-cyclical application of the rules could follow.
The Commission is also finalising its assessment on credit rating agencies and envisages a formal proposal by autumn.