THE HIGH-LEVEL GROUP ON FINANCIAL SUPERVISION IN THE EU pot

[...]... avoid in the future legislation that permits inconsistent transposition and application; - the Commission and the level 3 Committees should identify those national exceptions, the removal of which would improve the functioning of the single financial market; reduce distortions of competition and regulatory arbitrage; or improve the efficiency of cross-border financial activity in the EU Notwithstanding,... financial institutions in order to ensure that rules and standards are properly applied This being said, in practice, regulation and supervision are intertwined and will therefore, in some instances, have to be assessed together in this chapter and the following one 39) As underlined in the previous chapter, the present crisis results from the complex interaction of market failures, global financial and monetary... but also in the EU, where significant housing bubbles developed in the UK, Ireland and Spain 46) This explanation is not inconsistent with the one focusing on excessive liquidity fuelled by too loose monetary policy Actually the two lines of reasoning complement each other: too low interest rates encouraged investment in housing and financial assets, but had monetary policy been stricter, there would... Supervisors should check that financial institutions have the capacity to complement the use of external ratings (on which they should no longer excessively rely upon) with sound independent evaluations Recommendation 3: Concerning the regulation of Credit Rating Agencies (CRAs), the Group recommends that: - within the EU, a strengthened CESR should be in charge of registering and supervising CRAs; a fundamental... deterrent sanctions regimes against all financial crimes sanctions which should be enforced effectively 84) Neither of these exist for the time being in the EU Member States sanctioning regimes are in general weak and heterogeneous Sanctions for insider trading range from a few thousands of euros in one Member State to millions of euros or jail in another This can induce regulatory arbitrage in a single market... regulation and supervision 38) Regulation is the set of rules and standards that govern financial institutions; their main objective is to foster financial stability and to protect the customers of financial services Regulation can take different forms, ranging from information requirements to strict measures such as capital requirements On the other hand, supervision is the process designed to oversee financial. .. prevention should be the first preoccupation of national and EU authorities (see chapter on supervision) Supervisors should act as early as possible in order to address the vulnerabilities identified in a given institution, and use all means available to them to this effect (e.g calling on contributions from shareholders, fostering 32 the acquisition of the institution concerned by a stronger one) In this... and in some cases did not insist in getting, or received too late, all the relevant information on the global magnitude of the excess leveraging; that they did not fully understand or evaluate the size of the risks; and that they did not seem to share their information properly with their counterparts in other Member States or with the US In fact, the business model of US-type investment banks and the. .. calculate their technical provisions, which makes it difficult to compare the solvency standing of insurance companies across the Community; - the differences in the definition of regulatory capital regarding financial institutions are striking within the EU (for example, the treatment of subordinated debt as core tier 1 is the object of different adaptations) This goes at the heart of the efficiency and the. .. related low interest rate conditions which prevailed globally since the midnineties These conditions fuelled risk taking by investors, banks and other financial institutions, leading ultimately to the crisis 44) The low level of long term interest rate over the last five years – period of sustained growth – is an important factor that contrasts with previous expansionary periods 45) As industrial economies . GROUP ON FINANCIAL SUPERVISION IN THE EU 69 ANNEX II: MEETINGS OF THE GROUP AND HEARINGS IN 2008 - 2009 70 ANNEX III: AN INCREASINGLY INTEGRATED SINGLE. heavily on financial markets in the EU and beyond. The complexity of a number of financial instruments and the intrinsic vulnerability of the underlying assets