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Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
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Congressional Research Service (CRS)

 

Financial Market Supervision: European Perspectives

James K. Jackson, Specialist in International Trade and Finance

February 4, 2010

http://opencrs.com/document/R40788/2010-02-04/download/1013/

[full-text, 28 pages]

 

Summary

The global financial crisis has sparked a debate over the cause and impact of the crisis.

Academics and policymakers are searching for changes in the financial system that can correct

any perceived weaknesses in the structure of regulation, the content of regulations, and the

coverage of financial instruments and activities. Since the onset of the crisis, numerous proposals

have been advanced to reform or amend the current financial system to help restore economic

growth. In the United States, the Obama Administration has proposed a plan to overhaul

supervision of the U.S. financial services sector. The proposal would give new authority to the

Federal Reserve, create a new Financial Services Oversight Council, create a Consumer Financial

Protection Agency, and create a new National Bank Supervisor to replace the Office of the

Comptroller of the Currency and the Office of Thrift Supervision. In contrast, Senator Collins

introduced S. 664, the Financial System Stabilization and Reform Act of 2009, with a companion

measure, H.R. 1754, that was introduced by Representative Castle in the House of

Representatives. The measures would create a Financial Stability Council and grant the Federal

Reserve the authority to examine the soundness and safety of the financial system posed by bank

holding companies. Other measures include: S. 1682 (Senator Cantwell), the Derivatives Market

Manipulation Prevention Act of 2009; S. 1803 (Senator Merkley), the Federal Reserve

Accountability Act of 2009; S. 2756 (Senator Warner) the Financial Services Systemic Risk

Oversight Council Act of 2009; H.R. 3795 (Representative Frank), the Over-the-Counter

Derivatives Markets Acts of 2009; H.R. 3968 (Representative Ellison), to amend the Bank

Holding Company Act; and H.R. 3996 (Frank), to improve financial stability. The crisis has

underscored the fact that national and international financial markets have become highly

integrated, and problems in one market can trigger contagion that can spread both among

countries and into economic sectors to affect businesses, employment, and household well being.

 

Similarly, governments in Europe are considering what, if any, changes they should make to their

national financial systems. Along with the United States and other countries, European countries

also are considering changes to the international systems of financial supervision and regulation

in order to ensure prosperity through the smooth operation of domestic and international financial

systems. This process may include reconsidering the roles and responsibility of the central banks

in the post-financial crisis era. Various organizations and groups are advancing a large number of

recommendations and prescriptions. Some goals for any such adjustments may include providing

an institutional structure for oversight and regulation that is robust, comprehensive, flexible, and

politically feasible while providing appropriate incentive structures to preclude excessive risktaking.

Of course, there are no guarantees that amending the current system or employing a

different regulatory and supervisory structure will preclude a repeat of the most recent financial

crisis given that financial markets and institutions are continually growing, innovating, and

responding to government- and market-imposed constraints.

 

This report addresses the European perspectives on a number of proposals that are being

advanced for financial oversight and regulation in Europe. The European experience may be

instructive because financial markets in Europe are well developed, European firms often are

competitors of U.S. firms, and European governments have faced severe problems of integration

and consistency across the various financial structures that exist in Europe.

 

Contents

Overview...................................................................................................................................1

The European Union ...................................................................................................................2

Financial Crisis ...........................................................................................................................3

Other Major EU Financial Directives ....................................................................................6

Investment Services Directive .........................................................................................6

Financial Services Action Plan ........................................................................................6

Markets in Financial Instruments Directive .....................................................................7

Capital Requirements Directive.......................................................................................8

EU Financial Supervisory Authorities....................................................................................8

The “European Framework for Action” ...............................................................................13

The de Larosiere Report and the European Plan for Recovery..............................................14

The de Larosiere Report................................................................................................15

Driving European Recovery ..........................................................................................18

Conclusions ..............................................................................................................................20

Figures

Figure 1. Key Bodies in the EU Banking Sector-Stability Framework..........................................9

Figure 2. European Financial Supervision in the de Larosiere Report.........................................17

Tables

Table 1. European Union Financial Supervisory Structures........................................................ 11

Appendixes

Appendix. Summary of Recommendations of the de Larosiere Report on EU Financial

Market Supervision................................................................................................................22

Contacts

Author Contact Information ......................................................................................................25

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This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.

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Institute for Workplace Studies 
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New York, NY 10016                        
                                   
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