Home | Topics | EU

The legislative response to the crisis in the European Union

Printer-friendly versionPDF version

At the European Union level, the legislative response to the crisis has been generally slower than in the United States for four main reasons. First, legislative proceedings are structurally slow in the European Union because of the complex interaction between the EU level and 27 sovereign states.

The lawmaking framework combines the exclusive right of initiative for the European Commission and the need to reach agreement both with the Council of Ministers, which represents the 27 member states voting (in most financial-services matters) under a qualified-majority rule, and with the European Parliament. Second, at the time of the Lehman Brothers collapse, the European Commission was already in lame-duck mode awaiting its planned renewal in 2009, and this renewal was then further delayed for procedural reasons involving the adoption of the Lisbon Treaty. The new team, including the new commissioner for the internal market and services (who oversees most financial-services issues), Michel Barnier, only took the reins in early 2010. Third, priority was initially given to the necessary overhaul of the European Union’s supervisory architecture. This is an innovative policy endeavour that will result in 2011 in the establishment of three supranational European supervisory authorities, with respective mandates over banks (European Banking Authority – EBA), securities and markets (European Securities and Markets Authority – ESMA) and insurance (European Insurance and Occupational Pensions Authority – EIOPA), as well as a European Systemic Risk Board to oversee macroprudential issues. The corresponding legislation, based on a report published in February 2009 (Larosière, 2009), was finalised in September 2010. This rather long delay is unsurprising given the political significance of the changes: the US equivalent is not the limited reorganisation of federal agencies included in the Dodd-Frank Act, but rather the establishment of federal financial authorities such as the Securities and Exchange Commission and the Federal Deposit Insurance Corporation in the 1930s, even though the European agencies will start with a more limited mandate that does not supersede all existing competencies of national supervisors at the level of EU member states. Fourth, and not least, the European Union remains in the midst of an unresolved major banking crisis, while in the United States the 'stress tests' of spring 2009 and subsequent recapitalisation managed to restore a sense of normality at the core of the national banking system, even though many smaller banks have failed since.

Now that a new commission is in charge and a suitable supervisory infrastructure is being put in place, new policy initiatives are to be expected. The indications so far, however, are that the EU institutions are reluctant to envisage specific policies to address the TBTF problem. Two European Commission communications (nonbinding statements of policy principle) were published in 2010, the first on 'Bank Resolution Funds' in May and the second on crisis management and resolution in October (European Commission, 2010a and 2010b). Both contain essentially no reference to a possible differential treatment of SIFIs compared to smaller financial institutions, and suggest that the commission at this point remains markedly more cautious on the TBTF problem than the United States has been with the adoption of the Dodd-Frank Act. The same applies to a more recent consultation on 'technical details of a possible EU framework' for bank recovery and resolution (European Commission, 2011).

Such caution reflects a more structural challenge for the European Commission as a direct result of the financial crisis. In the preceding decade, the European Union relied on an implicit agreement within both the commission and the European Parliament to foster financial-market integration through the dismantling of national regulatory barriers that hindered it, and thus de facto aligned itself with an international deregulatory agenda (Posner and Véron, 2010). Now that reregulation is the order of the day, this alignment is no longer relevant, and the European Commission finds itself with the need to define a new strategic orientation that must still be compatible with the beguiling diversity of national positions and regulatory cultures within the European Union. One option may be to replicate US choices under the guise of transatlantic convergence, as Commissioner Barnier seems to have chosen in the important issue of moving over-the-counter derivatives toward centralised clearing. However, it is doubtful that the same can be achieved in the highly politically charged area of bank regulation. Thus, it is to be expected that some time will pass before a clear orientation emerges at the EU level in this area.

this looks like some kind of summary of this below;-

Too Big to Fail: The Transatlantic Debate
Morris Goldstein and Nicolas Véron

Short URL
Asymptotix on Twitter

Are the key legislative pillars such as Basel II & III, UCITS IV and Solvency II forcing you to re-examine how you identify, measure and manage risk and capital?

Asymptotix work closely with our partners to help clients develop a more proactive, systematic and integrated approach to governance and risk management to deliver proper value.

Asymptotix can offer the support you need to deliver on time. Read more...
 

Is the goal of your website to sell services or products, educate, or collect data?

A positive customer experience is vital to conversion, no matter what your conversion goals may be. Our designers and developers will create a positive experience to maximize your conversions and deliver the optimal return on your investment. We strive to find the perfect balance between the web site’s design and functionality.

Asymptotix implements interactive solutions for European companies. From corporate websites to social communities, our clients will tell you an investment in building a scalable online experience will deliver long-term tangible benefits.

Based in Luxembourg we can help you all over Europe. Our multi-lingual team can work with projects and speak your language! Read more...