The current crisis had made it clear to all that the international system of financial regulation and supervision had clearly exposed its limitations. Markets have failed because their institutional and supervisory arrangements were inadequate. These shortcomings definitely have to be addressed. The European Banking Federation (EBF) has been contributing to the debate on regulatory reform since the beginning. It has made concrete proposals to the various groups that have examined the way forward, and in particular to the Experts Group led by Jacques de Larosière, created by the European Commission.
The de Larosière Group published its conclusions in late February, followed by a series of proposals made by the European Commission, which the EBF broadly welcomed. We then published a series of comments on the key areas of regulatory reform, in advance of the G20 meeting, held in London in early April. (EBF considerations in view of G20 can be found on http://www.ebf.fbe.eu.)
The EBF generally feels that the de Larosière Report provides a positive and forward-looking input into the collective response to the recent collective failings of industry, regulatory authorities and policy makers.
European banks have repeatedly asked for an effective and efficient supervision, particularly across borders, which they feel the paper clearly provides the foundation for. Providing Europe with a consistent set of rules is crucial. Generally speaking, the EBF welcomes the proposal made to strengthen the Basel Capital Framework for regulation but thinks this should be done gradually. It also agrees that there is a need to reduce the strong pro-cyclical impact of the current regulatory framework.
Regarding macro-prudential supervision, the EBF considers the creation of a European Systemic Risk Council (ESRC) within the European Central Bank as a very positive proposal, fully in line with the recommendations the EBF itself addressed to the de Larosière group.
On the micro-prudential supervision aspects, the EBF welcomes the objective of creating a European System of Financial Supervisors (ESFS), which confirms the reliance on college structures for cross-border banks, an approach the EBF has been supportive of for years. The EBF hopes that these new institutions can be created rapidly.
On Credit Rating Agencies, the EBF wishes to avoid conflicts of interests, inherent to risk rating, and it agrees with the idea to critically review the regulatory references to ratings, so that they are of high quality and transparent. The EBF feels that non-regulated institutions also have to be submitted to oversight.
The EBF agrees that measures should be taken in the area of Corporate Governance to strengthen internal risk management processes. Similarly, banking supervisors and central banks should review supervisory practices in the area of liquidity risk management.
It is now essential the Member States of the EU demonstrate the political will to implement swiftly and efficiently the various measures put forward by the Report and followed up by the European Commission proposals. On the whole, however, the EBF continues to stress that the efforts must concentrate on more effective regulation, not just on ‘more’ regulation.
