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The Euro area needs more centralised and integrated supervision of banks and financial markets to help prevent a recurrence of the financial turmoil which triggered the current recession, Secretary General Angel Gurría said presenting the OECD Economic Survey of the Euro Area. Policy-makers should create either a single EU-wide supervisor or a central agency to work in conjunction with national supervisors, he added.
This episode of financial instability has highlighted the need for adequate regulation of financial activity, which is a particular challenge in Europe’s increasingly integrated capital market, the report states. Recent events point to weaknesses in regulatory and supervisory frameworks which are being addressed at the European and international level.
The report calls it essential to reflect on how to align national supervisory systems to deal with cross-border risks by moving towards more centralised and EU integrated supervision. Policies need to be developed to deal with macro-prudential risks and ensure that regulation does not increase the pro-cyclicality of the financial system.
The survey says there is scope for the European Central Bank to cut interest rates further. Meanwhile, government initiatives to stimulate the economy through public spending should be “timely, temporary and targeted.”