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Mr Trichet announced that European Central Bank’s Vice-President, Lucas Papademos, will present the latest Financial Stability Review and a comprehensive assessment of the financial sector in the middle of December.
He structured his speech in three main areas:
1. The role of insurance companies and pension funds for financial stability: He highlighted that there are three main reasons why insurance companies and pension funds can be important for systemic financial stability: their size, their interconnectedness and the economic function of insurance.
2. The new EU supervisory architecture: Mr Trichet believes that the establishment of the three European Supervisory Authorities (ESAs) will represent a significant step forward to ensuring consistent application of EU legislation across Member States and a common regulatory and supervisory approach at the EU level.
He presented three main benefits from the envisaged micro-prudential framework.
· First, the power to issue legally binding supervisory standards will allow for the establishment of a single European rulebook.
· Second, the proposed mediation and coordination powers should promote further convergence of supervisory action and practices.
· Third, in times of financial distress, the ESAs can be empowered to adopt decisions fostering a coordinated response by the national supervisory authorities. This can promote effective supervisory action in times of stress.
3. Interplay between the ESRB and the ESAs. He presented the following areas of cooperation between the two new bodies.
The ESRB will need the supervisory knowledge of the financial sectors. This knowledge can be provided by the ESAs and the national supervisory authorities through their involvement in the Advisory Technical Committee, which will support the ESRB.
The ESRB will also need data and information. The provisions in the legislative proposals provide for a smooth flow of information between the authorities in both directions, with full respect for confidentiality requirements.
The ESRB’s toolkit will include macroeconomic stress testing exercises. As the ESAs are also expected to coordinate stress tests, the ESRB will have to cooperate with the ESAs. The recent set of stress tests coordinated by the Committee of European Banking Supervisors, in close collaboration with the ECB and the European Commission, may represent a useful example.
He concluded by saying that “the central banks stand ready to provide the envisaged support to the European Systemic Risk Board. The smooth cooperation and exchange of information between the ESRB and the ESAs will foster the effectiveness and thus the credibility of the new framework.”