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After cracking down on rating agencies, the European Commission and the French EU Presidency have announced tighter supervision of the finance and banking sector in response to the credit crisis which began in the US. EurActiv reports from the Eurofi conference in Nice.
The 'sub-prime' crisis imported from the States has started to affect the European economy, which suffered "a sharper than expected slowdown," according to the economic forecast for 2008 published by the European Commission on Wednesday (10 September).
In his initial reaction to the turmoil, which began in August 2007, Internal Market Commissioner Charlie McCreevy pointed his finger at credit rating agencies. The commissioner accused them of applying high rates to complex and unsafe financial products, thereby encouraging the risk-taking by managers that fuelled the crisis.
After a series of warnings, the commissioner finally made clear in July this year that regulation was the only option to improve ratings and that a new set of rules would be proposed by the autumn (EurActiv 31/07/08).
Charlie McCreevy, the EU's internal market commissioner, announced yesterday (11 September) that by the end of the month, the EU executive will present proposals to improve and harmonise cross-border financial supervision of banks, one of the weak links in EU crisis prevention mechanisms.
Ahead of an informal meeting of EU finance ministers in Nice today (12 September), Christine Lagarde, the French finance minister, strongly supported a move in this direction, calling for more coordination of supervision.
The push might involve "delegation of some powers", she said in a recorded message to the Eurofi conference, a major two-day gathering of banking and finance professionals in Nice. Ministers put supervision top of the agenda of the meeting, which takes place on Friday and Saturday (12-13 September).
According to Lagarde, European credit institutions do not communicate between themselves enough and are supervised only by national authorities, while their activities have an international impact. As a result, supervisory control of banks is decreasing in proportion to the rise in cross-border financial activity.
She says the current turmoil clearly revealed the trend: regulatory authorities at national level did not see the storm brewing until it was upon them. As banks were hit by the crisis in the US, their exposure to risky products and attitudes was underestimated or simply unidentified by European supervisors.
Following industry suggestions as well, McCreevy has proposed the introduction of a "collegial" mechanism of supervision of cross-border groups by national regulators. Under this scenario, national supervisors would increase their cooperation efforts in order to avoid duplication of requirements and of information requests to banking institutions.
Many argue in favour of extending the supervisory role of national regulators to cover banks or insurance companies when investigating activities in other EU countries. Cross-border players devise their risk management strategies in headquarters, not in subsidiaries, the argument goes. But at the moment, supervision is carried out domestically, regardless of the size and nature of the company.
Both McCreevy and Lagarde appealed to European leaders to reach an agreement on Solvency II, which will also reform and harmonise the way cross-border insurance groups are monitored.
Internal Market Commissioner Charlie McCreevy said: "The Commission will propose amendments to the Credit Requirements Directive on 'colleges' to increase the efficiency of supervision. This proposal should be available around the end of this month. I hope that the French Presidency reaches political agreement on this text. For financial stability, we will further develop our policy in a White Paper to be published next year on early intervention tools for dealing with ailing banks."
French Finance Minister Christine Lagarde echoed McCreevy's sentiments: "It is necessary to improve the supervisory systems of European cross-border groups. The French Presidency will not ask for centralised supervision, but it is clear that we need more coordination, which can also lead to delegation of powers".
Portuguese Finance Minister Fernando Texeira dos Santos agreed: "We need a clear decision-making process, good mechanisms to foster cooperation, more information-sharing and good mediation process for cross-border supervision."
Michel Pébereau, President of the European Banking Federation (EBF) and Chairman of BNP Paribas, said: "A pragmatic way forward to deliver an efficient supervisory framework for cross-border banking groups is to concentrate on the functioning of colleges of supervisors. It is crucial that they act as one with one single view".
Kerstin Jochnick, chairwoman of the Committee of the European Banking Supervisors (CEBS), welcomed the announcements, which would ultimately increase the powers of her committee, but warned of the difficulties of the task: "Changing national legislations and attitudes in the banking sector is like turning a Skoda into a Volvo," she told the Eurofi conference.
Eurofi, a think-tank asked Ecofin ministers for "the establishment of colleges grouping the European supervisors concerned together, which would be given a similar mandate in order to ensure identical protection for all of the group's European customers".
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(11 Sept. 2008)
(11 Sept. 2008) 
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