FRANKFURT (MNI) – The following is the first part of a verbatim
text of the introductory statement by European Systemic Risk Board Chair
Mario Draghi at his hearing before the Committee on Economic and
Monetary Affairs of the European Parliament:
Dear Honourable Members,
I am very pleased to appear before this Committee today to present
the first annual report on the activities of the European Systemic Risk
Board (ESRB) of which you have all received a copy and which is being
published as I speak. In my remarks today, I will refrain from repeating
the content of the report and will instead focus on three key areas of
the ESRBs work over the past year, which will also keep us busy for the
foreseeable future. These are: i) the assessment of systemic risks; ii)
the establishment of a sound macro-prudential framework in the EU; and
iii) medium-term structural developments in the EU financial system. I
will then be at your disposal for questions.
1. Assessment of systemic risks in the EU financial system
It is less than a year since the ESRB cautioned that the risks to
the EU financial system had become systemic. After a period of
stabilisation on the back of actions by central banks and other
institutions earlier this year, more recently there have been renewed
bouts of volatility and uncertainty, although not at the same levels
reached in November 2011.
Fundamental challenges persist. In my view, these include: i)
limiting contagion between Member States across the EU; and ii)
promoting a macroeconomic strategy that, together with fiscal
consolidation, supports growth and furthers the competiveness
adjustments needed to tackle the economic imbalances within the EU.
Addressing these challenges in a decisive and sustainable manner is
a prerequisite for the success of measures to ensure a more resilient
financial system capable of supplying, on a sustainable basis, the
financial services necessary to support economic activity. From a
macro-prudential point of view, such measures include: i) implementing
credible mechanisms for the recapitalisation and restructuring of banks,
where needed; and ii) improving banking supervision and resolution at
the European level.
In the past, the ESRB has underlined the need for all national and
European authorities to act, and to do so in unison, with speed,
ambition and a total commitment to safeguard financial stability. Today,
I reiterate this call, while acknowledging the efforts undertaken so
far.
Within the broader economic and financial context, the financial
system continues to face the challenge of adjustment in order to address
imbalances accumulated in the past. For banks, progress has already been
made on some fronts, but more is needed. For other financial sectors, it
is important that international and EU reforms, designed to improve
their resilience, are fully implemented and adhered to an issue that I
will return to later.
The ESRB is concerned with two aspects of banks adjustment. First,
it should be carried out in an orderly way to support economic growth to
the full extent necessary, without exacerbating market fragility and the
positions of others in the financial system. Second, the degree of
adjustment planned by the EU banking sector over the coming years must
be sufficient to restore confidence in the strength of banks balance
sheets.
With regard to the first point, official data and surveys from many
countries across the EU indicate some overall stabilisation in financial
conditions in the early part of this year. However, the recent
turbulence highlights the uncertainty surrounding the outlook for these
financial conditions, given their link to the soundness of EU banks
balance sheets and, in turn, the direct or indirect connections between
those balance sheets and sovereign vulnerabilities.
Concerning the second point, close monitoring and a systemic
assessment of the feasibility and nature of the adjustment by banks, as
well as within the financial system more broadly, is crucial. In this
regard, the ESRB has called upon its partners within the European System
of Financial Supervision supervisory authorities at the national and
EU level to regularly collect detailed, ex ante information from banks
and other key players in the system, and report it to the ESRB. The
General Board will review the latest developments and their
implications at its meeting in June.
2. A sound macro-prudential framework for the EU
Let me now turn to the work undertaken to establish a framework
capable of addressing the deficiencies of the pre-crisis framework in
preventing and mitigating systemic risks in the EU.
While the launch of the ESRB was a first, and necessary, step in
this respect, it is vital to develop a sound and comprehensive
macro-prudential framework for both the EU as a whole and the individual
Member States. As indicated in the Annual Report, this has been one of
the ESRBs priorities since its inception.
First, in order to create a solid foundation for pre-emptive action
against systemic risks, it is essential to develop macro-prudential
mandates and tools. In its recommendation published in January, the ESRB
highlighted the need for well-defined macro-prudential mandates for
national authorities to act either on their own initiative, or in
response to the ESRBs advice. In accordance with the ESRBs duty to
follow up on its recommendations, the first reports from the Member
States outlining their progress thus far are expected by the end of June
under the ESRBs comply or explain mechanism.
A key lesson from the past is that financial or systemic stability
mandates must be accompanied by the means to act. Macro-prudential
authorities will need to be equipped with effective policy tools to
respond, in a pre-emptive way, to the complex and ever-changing variety
of systemic risks. The ESRB is currently working on identifying the
minimum set of tools necessary for conducting macro-prudential policies
throughout the EU.
Second, it is crucial to ensure that macro-prudential issues are
taken into consideration when developing EU legislation for the
financial sector, given the impact that such regulations could have on
incentives within the financial system. In this regard, I would like to
touch on a number of important pieces of EU legislation that the ESRB
has been following: i) a draft directive and regulation on capital
requirements for credit institutions (the CRD/CRR); ii) the proposal
for a regulation on OTC derivatives, central counterparties and trade
repositories (EMIR); and iii) the part of the proposal for the Omnibus
II directive that concerns the regulation of the insurance sector.
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