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BackFor some time, the report of a high level group of experts - the so-called la Rosìere Group -, which had been commissioned by Commission President Barroso, was eagerly awaited in Brussels. Its mandate: What should financial regulation in Europe look like in future?
The group of eight experts chaired by the former director of the International Monetary Fund Jacques de Larosìere has done a good job. This week, it presented its final report in Brussels: 85 pages, bulging with analyses as to how it was possible that one of the most serious financial crises in post-war history was able to develop and what has to be done both in Europe and globally, to prevent this disaster from ever happening again.
Even if well-informed circles voiced criticism of the strong presence of economists in the group, the results must nevertheless be rated as a devastating assessment of the liberalisation and deregulation ideology of past decades in the financial markets. Hardly any of the leading institutions and players has been left unscathed. The issue banks come as much under fire as do the banks and the supervisory authority, the rating agencies, the remuneration systems in the financial institutes (keyword bonuses and manager salaries), but also international institutions such as the IMF and the G20. A failure of regulation and coordination, which could also be called a total loss of control. A loss of control, which made some insiders for many years a lot of money. A bill, which must now be footed by the general population and the labour force.
All the more important is the question what has to be done to avoid a similar debacle in future. Here too, the Report is offering plenty of answers and recommendations - 31 in all. The capital requirements for banks should be increased, rating agencies regulated, financial reporting standards reviews, the powers of the supervisory authority strengthened, speculative transactions supervised and the remunerations systems for managers should be reformed, to name just a few examples.
In accordance with the Report, the supervisory authorities in Europe also leave a lot to be desired. For a long time, experts had criticised that - encouraged by the liberalisation steps of the EU - high street banks were able to grow in Europe, which could no longer be controlled by one Member State alone. Nevertheless, such banks, which were active throughout Europe, were mainly supervised by the individual Member States, without sufficient cooperation between countries’ authorities - a completely unacceptable condition in a financially interlocked internal market. This situation is also covered by the Report’s recommendations. Stronger supervisory authorities in the Member States as a first step, a centralised and integrated supervisory authority for Europe (European System of Financial Supervision) as a second step until 2012. In addition, the la Rosìere Group recommends comprehensive reforms at international level.
The number of recommended improvements is almost breathtaking. It reflects how much has gone wrong in the past decades. To implement these changes will take a lot of time as they have to be pushed through against the resistance of lobbies. These changes should be embark upon in a fast and determined manner before the social costs of the greed of past decades get out of control.
For further information:
Brief Summary of the Larosìere Report
Even if well-informed circles voiced criticism of the strong presence of economists in the group, the results must nevertheless be rated as a devastating assessment of the liberalisation and deregulation ideology of past decades in the financial markets. Hardly any of the leading institutions and players has been left unscathed. The issue banks come as much under fire as do the banks and the supervisory authority, the rating agencies, the remuneration systems in the financial institutes (keyword bonuses and manager salaries), but also international institutions such as the IMF and the G20. A failure of regulation and coordination, which could also be called a total loss of control. A loss of control, which made some insiders for many years a lot of money. A bill, which must now be footed by the general population and the labour force.
All the more important is the question what has to be done to avoid a similar debacle in future. Here too, the Report is offering plenty of answers and recommendations - 31 in all. The capital requirements for banks should be increased, rating agencies regulated, financial reporting standards reviews, the powers of the supervisory authority strengthened, speculative transactions supervised and the remunerations systems for managers should be reformed, to name just a few examples.
In accordance with the Report, the supervisory authorities in Europe also leave a lot to be desired. For a long time, experts had criticised that - encouraged by the liberalisation steps of the EU - high street banks were able to grow in Europe, which could no longer be controlled by one Member State alone. Nevertheless, such banks, which were active throughout Europe, were mainly supervised by the individual Member States, without sufficient cooperation between countries’ authorities - a completely unacceptable condition in a financially interlocked internal market. This situation is also covered by the Report’s recommendations. Stronger supervisory authorities in the Member States as a first step, a centralised and integrated supervisory authority for Europe (European System of Financial Supervision) as a second step until 2012. In addition, the la Rosìere Group recommends comprehensive reforms at international level.
The number of recommended improvements is almost breathtaking. It reflects how much has gone wrong in the past decades. To implement these changes will take a lot of time as they have to be pushed through against the resistance of lobbies. These changes should be embark upon in a fast and determined manner before the social costs of the greed of past decades get out of control.
For further information:
Brief Summary of the Larosìere Report