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Newsroom & speeches
30 September 2009
I am pleased to see the concerted and collective action that Europe has taken, and continues to take, in response to the crisis, to improve the regulatory and supervisory framework in the EU and enhance financial stability.
European leaders have called for measures to improve the quality and consistency of supervision, ensure more effective rulemaking and enforcement, and better identify risks in the financial system. The Commission’s legislative proposals last week have the potential to make a real difference in this area.
Therefore what Europe needs to do now is to put its full support behind the systemic risk board and setting up an effective early warning system to improve financial stability in Europe.
In addition, it must support the new European Supervisory Authorities, to improve the quality of regulation by generating a more harmonised set of rules, to raise the quality of supervision through effective peer review and mediation, and in assisting the Commission in its role in enforcement, where we must ensure that we apply the law and rules that we have agreed.
But we must be vigilant to ensure that the new bodies work in an effective and legal way, reflecting the institutional balance in Europe, and respecting the legal judgments of the ECJ.
While a lot of positive work has already been done, Europe still needs to do more, and I would like to highlight four key areas in which I would press for action.
Firstly, more work needs to be done in the area of crisis management and resolution. The crisis showed that decisions about fiscal and central bank support for cross-border firms focus on national rather than global considerations. One way to minimise the risks is careful firm-specific contingency planning - ‘de-risking plans’ and ‘living wills’. I consider this is a viable alternative to burden sharing arrangements that are difficult to agree in advance and even harder to implement in a crisis. I believe that this type of planning will promote simpler group structures that are easier to wind-down and to regulate.
The current framework of deposit guarantee schemes was severely tested during the crisis last year, and a number of weaknesses have been exposed. We must learn the lessons from the experience of the crisis, and enhance the operational effectiveness of deposit guarantee schemes.
Technical details, such as coverage level, eligibility and payout have to be got right. However, these measures will not, by themselves, address the operational deficiencies and provide the degree of depositor confidence that will be required if deposit guarantee schemes are tested again.
Further concrete measures would include secure access to additional liquidity support; the ability to finance the transfer of deposits to another institution, as an alternative to direct payment of compensation; faster payouts; enhanced cooperation and a single point of contact for cross-border depositors.
The crisis also highlighted failures in the supervision of cross border bank branches. Therefore, as well as improving the quality of supervision across the board, we also need effective safeguards for the hosts of branches, to preserve the concept of the single market.
I believe that branches should pose no greater risk to the host country than an equivalent subsidiary in the host State. So the CRD should be strengthened to give regulators access to whole-group information. It should introduce clearer precautionary and proportionate powers for a host State to act to reduce the likelihood and cost of branch failures, while respecting the relevant Treaty freedoms.
Europe also needs a clearing directive, to ensure that risks in central counterparty clearing houses (CCPs) are mitigated by high operational and prudential standards across the EU. The benefits of CCP's in periods of crisis were highlighted in the aftermath of the collapse of Lehman Brothers. Given the key role that CCP's, including for derivatives, play in financial stability, it is vital that we bring them within a harmonised EU legislative framework.
Finally, it is of utmost importance that we ensure that thorough consultation, cost benefit analysis and impact assessments are carried out for all of the EU’s regulatory initiatives. We strongly welcome President Barroso’s commitment to “smart regulation”, in his manifesto to the European Parliament, where he stressed the need to ensure that regulation is “effective, proportionate and comprehensive”. This will give the EU high quality rules and make it a global leader.
