Loading ...European Parliament has adopted a report drafted by MEPs Ieke Van den Burg (PES, the Netherlands) and Romanian Daniel Daianu (ALDE) calling on the European Commission to come up with legislation to improve the supervisory architecture and regulatory framework for financial services in Europe.
The report, adopted in a 565 to 74 vote and 18 abstentions, is a comprehensive overview of areas that need attention in the light of the current crisis and after seven years of operation of the current “Lamfalussy system” It includes recommendations on the structure for the “Level 3” Committees of national financial regulators (for securities, for pensions and insurance, and for banking) and on the mechanisms for managing systemic risk.
Daianu said in the debates ahead of the vote that “the free markets are not synonymous with the lack of any regulation. For example, a lax monetary policy can lead to increased inflation and, ultimately to recession, but it cannot by itself provoke the collapse of a financial system. This is the crux of the matter: the traits of the system having led to a situation of impending collapse are the structural characteristics of the ‘new’ financial system”.
The Romanian member of European Parliament argued “the main cause for this crisis is an inadequately regulated financial system. Mortgage lending is not in itself toxic; but the very risky guarantees that rely on which such mortgage are toxic. The packaging/re-packaging of financial products can be toxic and it can produce opacity in the markets. The remuneration schemes that cause irresponsible behaviour are toxic. Deluding quantitative models are toxic. The extreme use of lending to buy bonds is toxic. It would be utterly wrong not to tackle these problems”.
The final document proposes concrete measures to improve the transparency of the financial markets by an adequate evaluation and by monitoring the risks of the complex financial products and for the improvement of securitisation, namely more transparency, clarity and regular (quarterly) data availability.
The report proposes clearer regulations regarding the conflict of interests in the case of the rating agencies – meant to boost their objectivity – and also solutions so that the remunerationschemes used by the financial institutions may be public and balanced, above all. A compulsory guarantee fund for all the market financial institutions and a compulsory minimum ceiling for such fund are other key elements.
The report also says the European Central Bank (ECB) should develop a database as well as scenarios and policies regarding the prudential macro-supervision and the financial stability of the markets. The rapporteurs argue the EU central banks and supervision bodies should provide the ECB information in order to facilitate its activity and prevent systemic risks. The report proposes the setting up of a European body for the financial market surveillance, able to feel the elements of a possible systemic crisis in due time.
“On the background of the globalization of the financial markets, the systemic risks are enhanced amid the lack of proper regulation. Therefore, we should review the regulatory system and the supervisors should not underestimate the systemic risks; they should be on constant alert over the financial stability. We need complete crisis responses and we need efficient coordination among the EU, United States and the other important financial centres, particularly at difficult times”, Daianu explained.
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