ECON hearing on financial supervisory package – de Larosière stresses progress has been satisfactory
29 January 2010
Mario Draghi shares de Larosière’s fear concerning the extent to which the ESRB’s decisions will be effective if they are not binding. ESRB having the same structure as the FSB should contribute to its effectiveness.
At a public hearing on the financial supervisory package, Economic and Monetary Affairs Committee MEPs discussed the current state of play and the future options regarding the EU's nascent supervisory bodies with leading experts including Jacques de LAROSIÈRE, Chairman of the High-level Group on Financial Supervision.
Delivering the keynote speech, de Larosière confirmed that progress has been very satisfactory. "Most of the recommendations on the organisation of supervision in Europe are reflected in the Ecofin's December position so we should not minimise what has been achieved" he said. Nonetheless, he conceded that in the case of other issues like the mediation process, market infrastructure, the review clause, and the non-infringement clause, no real binding decision was taken or it "simply did not survive."
José María ROLDÁN ALEGRE, Director General Banking Regulation, Banco de España, declared himself to be "strongly in favour of the de Larosière report and its evolutionary rather than revolutionary approach". Although we need more intensive supervision, practical implementation is even more important”. The crisis has led to the convergence of supervisory practice which is "good news."
Mario DRAGHI, Chairman of the Financial Stability Board, Bank for International Settlements, said that he shared de Larosière's fears "as regards the extent to which the ESRB's decisions will be effective if they are not binding." On the other hand, the fact that the ESRB should have the same structure as the Financial Stability Board "should contribute to its effectiveness," he added.
For Peter PRAET, Executive Director, Belgian Central Bank, "it is urgent to get started and keep the deadline." Micro and macro supervision, their interaction and synergy must be seen together, he argued stressing in this respect the "quality and consistency of the supervision" which are in his view "fundamental". Considering the markets have always found ways to circumvent recommended measures, we have to work out how to ensure its proper implementation.
Henri de CASTRIES, Chairman of Pan European Insurance Forum, considers crucial the "combining of stability with economic growth". However, he stressed "absolute stability is death". "The cost of zero risk is infinite." Furthermore, he called for "integration, comprehensive but balanced regulation, and a level playing field". Fundamentally it will be necessary to recognize "the diversity of business models, risk horizons and risk appetite," he said.
According to Sebastian DULLIEN, Professor for International Economics at the HTW Berlin – University of Applied Sciences, the Commission proposals "go in the right direction but they could go even further". Questioning the establishment of three different authorities, he classified the whole structure as "overall fragmented and really costly." All authorities should be at least put in the one city, he said.
The first round of MEP questions were characterised by the question of which body or institution should declare a future crisis. Sylvie GOULARD (ALDE, FR) asked whether what was needed was "an institution with the power to ring the alarm bell in the event of a crisis", whereas Arlene McCARTHY (S&D, UK) asked Mr Draghi "in which situation an emergency or crisis should be declared." Mr Draghi replied that it was very difficult to give a precise definition of what a crisis is and where it will come from. "The bottom line should be to work towards making the system more resilient to crises and not to prevent them".
A number of MEPs picked up on the need raised by Peter Praet to establish the legislation and supervisory authorities quickly even if they are not perfect. "There is a risk of importing legislation which is better suited to the US federal system than the EU. We are not a federal state", warned Olle SCHMIDT (ALDE, SE) when referring to the danger of a rushed 'cut and paste' approach to legislating.
José Manuel GARCIA-MARGALLO (EPP, ES) addressed the question of an EU level fund. "What will happen when things go wrong? Would we not need some form of fund?" he asked. Mr Roldán Alegre replied that the availability of an EU fund deserves important consideration especially with regards to the multitude of deposit guarantee funds available around the EU and the negative consequences of their diversity. de Larosiere agreed with the principle, but said that things would get tricky when extra financing becomes necessary, something which was a certainty.
The issue of the size and quality of the authorities secretariats was also brought up. Udo BULLMANN (S&D, DE) advocated in favour of setting up secretariats "designed to enable the staff to work the way we want them, rather than just get going with something". This was echoed by Mr Dullien although some other interventions from other panellists suggested the opposite approach. Vicky FORD (ECR, UK) asked how large the secretariats should be to enable them to take on financial companies. Mr Roldán Alegre replied that as long as the EU authorities worked through the national authorities, then "a small, competent and motivated secretariat can be extremely powerful".
The possibility for fragmentation between the EU authorities themselves was also a common thread in MEPs' interventions. Peter SKINNER (S&D, UK) put the question squarely: "why has a more integrated approach to the supervisory structure not been put forward?". Mr de Larosière replied that the primary reason for this was that there would probably not have been agreement within the high level group itself in favour of such an approach.
MEPs and the experts also exchanged views over how systemic risk is to be defined and identified. "Is systemic risk really only related to size?" Elisa FERREIRA (S&D, PT) asked. "You can have a harmless dinosaur and a deadly snake" Mr de Castres replied alluding to the fact that the size of an organisation is not always a right indicator for the presence of systemic risk. Mr de Larosière mentioned the case of Northern Rock when agreeing that size was not the only indicator.
Sven GIEGOLD (Greens, DE) asked the central bank representatives for their views on a potential conflict of interest arising between the ESRB and the ECB due to the large similarity of their board compositions. de Larosière does not see a problem with diversifying the composition of the ESRB so that it would not only be central bankers contributing its analyses.
The draft reports for the supervisory package are due to be presented to the Economic and Monetary Affairs Committee 22 February.
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