REGULATION AND oversight need to be extended to all “systemically important” financial institutions and markets, the president of the European Central Bank (ECB) said yesterday.
Jean-Claude Trichet told a Paris conference that reform needed to be “holistic” and that the current crisis was a “loud and clear call” to extend regulation to all important markets that pose fundamental risks to financial stability.
His comments, which were accompanied by new details of the possible role the ECB could play in the oversight system, followed weekend calls from European leaders for sweeping, structural changes in the way the region’s financial system is supervised.
Other regulators backed the pressure for a wide-ranging overhaul. “We have no time for piecemeal reforms,” said Hans Hoogervorst, chair of the Netherlands’ financial markets authority.
This swelling chorus is significant because it comes just 48 hours before an EU “high-level group” headed by Jacques de Larosiere, the former French central banker, is due to unveil its blueprint for reforming the financial system.
At present, this depends mainly on national oversight and then a patchwork of co-operative structures that vet organisations with cross-border operations. Most industry players and observers now agree this is outdated.
The difficulties in ensuring co-operation when cross-border institutions are involved were illustrated painfully during the bailout of Belgium’s Fortis bank, for example, where three national regulators struggled to co-ordinate action. The piecemeal way in which short-selling bans were implemented by national regulators last year was a recipe for market confusion.
What is less clear is what should be put in its place and, in particular, what reforms are politically achievable given the traditional refusal of many EU member states to cede authority in this area in spite of their leaders’ current enthusiasm for reform.
If any consensus has emerged in recent months, it seems to centre around more centralisation and some form of “European council” of financial supervisors, perhaps similar to the board of the ECB.
With this co-ordinating overall policy issues, day-to-day supervisory work could be left to the national authorities.
Various participants in Paris, at a conference organised by the pan-EU Committee of European Securities Regulators (CESR), supported this type of arrangement, from regulators such as Mr Hoogervorst to key MEPs such as Pervenche Beres, chair of the European Parliament’s economics and monetary committee.
Eddy Wymeersch, CESR's chairman, also endorsed a "hub and spoke" system. "We have to be able to implement more streamlining of our rules," he said, pointing out that, at present, when harmonised rules were subject to different interpretations by regulators, it was difficult to address the problem of varying practices. – (Financial Times service)
