The European Commission has published a speech by Charlie McCreevy (European Commissioner for Internal Market and Services) entitled Financial Markets & Economic Recovery. In his speech Commissioner McCreevy discusses the Commission's plan for restoring stability to the financial system which is based on four priorities:
Getting the supervision right. Commissioner McCreevy discusses the de Larosière report and its proposal for the creation of a European Systemic Risk Council. The consultation on the de Larosière report closes on 10 April 2009. Whilst not prejudicing the outcome of that consultation he does state that the status quo is not an option and that the existing Committees of Supervisors lack teeth.
- Getting the regulation right. Commissioner McCreevy states that the entire Basel 2 Accord requires a fundamental overhaul. It is clear that the shortcomings of the framework includes the absence of any overall gearing cap on bank balance sheets, wholly inadequate and inappropriate risk weightings for AAA rated structured products and an over-reliance on external credit rating assessments undertaken by agencies who are paid by the issuer.
- Commissioner McCreevy confirms that in the short term the Commission is proposing to further strengthen capital requirements for banks with regard to trading book activities and complex securitisations. It will also look at ways to mitigate pro-cyclicality in the current bank capital framework. A new revision to the capital requirements framework will be proposed this summer incorporating improvements.
- Getting risk management and pay incentives right. Commissioner McCreevy states that the Commission is going to issue a new recommendation on remuneration in financial services companies. Also, in the framework of the forthcoming revision of the Capital Requirements Directive, the Commission will look at whether capital requirements need to be increased in the case of institutions with inappropriate bonus structures which promote excessive risk-taking. The Commission will also consider possible regulatory action on corporate governance for banks, if it concludes that it is inadequate.
- Getting the sanctions right. Commissioner McCreevy states that the Commission will conduct a review on sanctions, and on the Market Abuse Directive and report back this autumn.
- At the end of his speech Commissioner McCreevy states that it is important that the Commission takes an active part in the multilateral discussions in the G20 and the Financial Stability Forum, to make sure that global solutions to the present financial market are found.
View EC speech - Financial Markets & Economic Recovery, 20 March 2009