Finance stability forum touted to prevent Enron-style collapse

Date: 11/07/02

By Peter Chapman

EUROPE should set up its own forum to keep watch on financial stability across the continent in the aftermath of the Enron crisis, top regulators and bankers agreed yesterday (10 July).

But divisions still persist over the controversial role of the Frankfurt-based European Central Bank in future pan-

European efforts to marshal the banking and insurance sectors.

ECB board member Tommaso Padoa-Schioppa told a European Parliament hearing on financial supervision he saw a role for a European group similar to the recently set-up Financial Stability Forum, which brings together global finance experts to nip economic crises in the bud.

He said the gathering 'could help identify incipient vulnerabilities in the European financial system [and] favour the development and implementation of standards and best practices across all types of financial institutions.'

'For the new forum to work effectively, the number of participants should be limited, while ensuring adequate representation of countries and sectors,' he said, adding that the ECB should be a part of the group.

Sir Howard Davies, chairman of the UK's Financial Services Authority (FSA), said the European version of the international Financial Stability Forum 'would bring finance ministers, central banks and regulators together to find common solutions to shared problems'.

'Currently there is no European forum in which the European Central Bank and I as a securities regulator come together,' he added. However, Davies stoked the fierce debate over the role of the ECB in future pan-European regulation of banking and insurance, claiming the new forum may be the best place for the Central Bank to influence the way markets are supervised.

A report by the EU's Economic and Finance Committee, set to be unveiled at this week's Ecofin meeting of finance ministers in Brussels, is expected to recommend a broadening of the so-called Lamfalussy approach to banking and insurance sectors.

This would rule out a single EU regulator for the industries and instead leave the job to specialist committees of national regulators and finance ministry officials.

This approach is already operating in the securities market sector where the specialist committees oversee the implementation of complex secondary legislation.

The ECB has tried to grab a key role for itself in any future pan-EU system, but the UK and Germany insist representatives from national regulatory bodies such as the FSA should take the lead in any new supervisory system, rather than the ECB.

Davies told MEPs he 'didn't think' the ECB's powerful banking supervision committee 'should or could' be granted specific regulatory powers under the Lamfalussy approach.

But Padoa-Schioppa countered: 'It would be difficult to understand why what is considered to be an asset both at national level and in international cooperation should be lost in the new EU structures.'

• See also Public debt could threaten EU growth in this issue.

Europe should set up its own forum to keep watch on financial stability across the continent in the aftermath of the Enron crisis, top regulators and bankers agreed on 10 July 2002.