EU told to assemble wise men in case of financial meltdown

By Stewart Fleming

Date: 08/06/06

A high-level commission should be created to advise the EU on financial crisis management, according to Jacques de Larosiere, a former managing director of the International Monetary Fund, now working for BNP Paribas.

Amid growing controversy and concern about the structure and regulation of Europe's financial markets, de Larosière said that the Council of Ministers and the European Parliament should support the creation of a mission like the Delors Report, the paper which laid the groundwork for the single currency in 1989.

He said the Ecofin Council of EU finance ministers should pull together a high-level working group involving the key players such as the European System of Central Banks (ESCB), the financial services committee of the Council, financial market regulators and representatives of major financial corporations.

The mission should look into how the EU is prepared for "preventing and managing financial crisis". It should report back within six months, de Larosiere said while attending a conference on retail finance services at the European Parliament.

Alexander Schaub, director-general of the Commission's internal market department, later expressed his support for the creation of a wise men's group to look into financial crisis management and the restructuring of bank regulation, in the light of the growth of large cross-border financial services groups.

But he warned that getting agreement on a new model for the supervision of cross-border banking organisations would be difficult. Commission President José Manuel Barroso said he was ready to look at the idea.

De Larosiere, also a former governor of the Bank of France and president of the European Bank for Reconstruction and Development, said he believed that big cross-border banks were, in practice, systemically, economically and socially too big to be allowed to fail and that co-ordinated management of crisis situations in the EU was therefore unavoidable.

His comments come at a time when EU finance ministers and central bankers are also paying attention to the possibility of a crisis in the system. The informal Ecofin Council in Vienna in

April was given a report on a simulation exercise intended to give a better understanding of how crisis management systems in the EU would work together.

The EU member states must sort out such questions as the basis for sharing the cost of financial support. More clarity is also needed on the specific procedures and organisational principles for preventing and managing crises.

Any crisis management plan will look at how a serious financial default might affect the banking, insurance and securities sectors.

De Larosiere said that the Lamfalussy process for speeding up the legislative process in Brussels, which has underpinned the Commission's Financial Services Action Plan, had succeeded in introducing "a measure of better co-operation and implementation" by the banking, securities and insurance regulatory committees. But, when applied at national level, new regulations were still too fragmented when compared with the objective of trying to create a single pan-European financial market.

• At the same conference, French socialist MEP Pervenche Beres, the chairman of the Parliament's economic and monetary affairs committee, criticised the possibility of a merger between the New York Stock Exchange and the Paris-based Euronext. She told European Voice that when it came to stock exchange consolidation "a European solution is best".

Her criticism echoed that of the French President Jacques Chirac.

Comments by Jacques de Larosiere, a former managing director of the International Monetary Fund, now working for BNP Paribas, who said that a high-level commission should be created to advise the EU on financial crisis management.