The aim of this paper is threefold: first to establish how the regulatory and supervisory architecture has evolved in Europe over the last decade; second to determine how the shortcomings of the present system affected the onslaught of the financial crisis in Europe; and lastly to evaluate whether the proposed regulatory and supervisory reforms are likely to successfully repair these weaknesses. Part I identifies that the single market objective, combined with the significant integration of European financial services, provided the major impetus for bringing about reform to the regulatory and supervisory architecture of Europe. By investigating the Financial Services Action Plan (FSAP) and the implementation of the Lamfalussy Process, this paper illustrates that the member states and the EU institutions sought to achieve a flexible regulatory and supervisory structure marked by cooperation and conversion towards common standards. However, despite the commendable progress made, Part II shows that the regulatory and supervisory system has not kept pace with the financial integration, and that the current crisis revealed substantial inadequacies of the present system. This paper will demonstrate that the weaknesses in the European financial regulatory and supervisory architecture acted both as contributing causes of the crisis, and as exacerbating factors. In particular the essay identifies three such shortcomings that aggravated the crisis, namely that the current system caused a breakdown in member state cooperation and coordination, that it is marked by inconsistency, and that it lacks a sufficiently developed EU-dimension. Lastly, Part III investigates the proposed regulatory and supervisory reforms that the de Larosière Report brought forth. The Report makes recommendations for extensive reform and it is submitted that not only are these reforms likely to cure many of the current cooperation and convergence problems, but they would also equip Europe with a partially centralised supervisory structure that would help prevent future crises of similar cataclysmic proportions.
Table of Contents
PART I: EVOLUTION OF EUROPEAN REGULATORY AND SUPERVISORY SYSTEM PRIOR TO THE CURRENT CRISIS
1.1. The FSAP and the Lamfalussy Process
PART II: THE WEAKNESSES IN THE EUROPEAN REGULATORY AND SUPERVISORY STRUCTURE THAT BOTH CAUSED AND EXACERBATED THE CRISIS
2.1. Regulatory and Supervisory Shortcomings that were Contributing Causes of the Crisis
2.2. Regulatory and Supervisory Shortcomings that Exacerbated the Crisis
2.2.1. The Current Regulatory and Supervisory System Caused a Breakdown in Cooperation and Coordination
2.2.2. The Current Regulatory and Supervisory System is Marked by Inconsistency
2.2.3. The Current Regulatory and Supervisory System Lacks a Sufficiently Developed EU-Dimension
PART III: PROPOSED REGULATORY AND SUPERVISORY REPAIR – IS IT LIKELY TO WORK?
3.1. Regulatory Repair
3.2. Supervisory Repair
Research Objectives and Core Themes
This paper examines the evolution of the European financial regulatory and supervisory architecture over the last decade, analyzes how its structural shortcomings contributed to and exacerbated the recent financial crisis, and evaluates whether current reform proposals are sufficient to address these systemic weaknesses.
- Evolution of European regulatory frameworks (FSAP and Lamfalussy Process).
- Identification of systemic weaknesses causing and worsening the financial crisis.
- Evaluation of the de Larosière Report recommendations.
- Analysis of the transition towards a partially centralized supervisory structure.
- Assessment of the challenges regarding regulatory competition and cooperation.
Excerpt from the Book
2.2.1. The Current Regulatory and Supervisory System Caused a Breakdown in Cooperation and Coordination
There is a wide consensus that member state cooperation and a unified European response is vital to resolve the financial crisis. This sentiment is embodied in the 2008 Memorandum of Understanding (MoU), which holds that Europe needs a quick and flexible response to the systemic crisis through “EU-level common principles, procedures and practical arrangements concerning cooperation among authorities responsible for preserving financial stability.”
The MoU constitutes a framework where the member states vow to share supervisory information with each other and to coordinate their responses to the financial turmoil through burden-sharing and clear responsibilities, yet MoU is of a non-binding nature and coordination consequently remains voluntary. There was initially high confidence in this type of self-regulation, but at the onset of the crisis these voluntary commitments to member state cooperation failed miserably: the member state responses were uncoordinated and remained firmly at the national level, and the EU-dimension was almost completely absent. The MoU’s principles of coordination were thus not respected, which encapsulates Europe’s “inability to forge a collective response to the crisis.” It has even been argued that the notion of ‘sufficient voluntary collaboration’ is mere wishful thinking since voluntary commitments to coordination are incapable of ensuring cooperation during a crisis because the member states’ interests are not aligned.
Summary of Chapters
PART I: EVOLUTION OF EUROPEAN REGULATORY AND SUPERVISORY SYSTEM PRIOR TO THE CURRENT CRISIS: This chapter details the integration trends in European financial markets and the implementation of the FSAP and Lamfalussy Process aimed at harmonizing regulation.
PART II: THE WEAKNESSES IN THE EUROPEAN REGULATORY AND SUPERVISORY STRUCTURE THAT BOTH CAUSED AND EXACERBATED THE CRISIS: This section identifies how structural fragmentation, regulatory inconsistencies, and a lack of an EU-dimension contributed to the severity of the financial crisis.
PART III: PROPOSED REGULATORY AND SUPERVISORY REPAIR – IS IT LIKELY TO WORK?: This chapter evaluates the de Larosière Report, focusing on proposed macro-prudential oversight and the creation of the European System of Financial Supervisors (ESFS).
Keywords
Financial Crisis, Regulatory Governance, European Union, Supervisory Architecture, FSAP, Lamfalussy Process, Financial Integration, Systemic Risk, Macro-prudential Supervision, ESRC, ESFS, Regulatory Competition, Cooperation, Financial Stability, de Larosière Report.
Frequently Asked Questions
What is the primary focus of this paper?
The paper focuses on the development and structural failures of the European financial regulatory and supervisory system and how these failures influenced the recent financial crisis.
What are the central themes of the work?
The central themes include regulatory evolution, the impact of market integration, the limitations of national-based supervision, and the push for a more centralized European oversight.
What is the main research question?
It investigates how the European architecture evolved, how its shortcomings affected the crisis, and whether proposed reforms can successfully repair these weaknesses.
Which scientific methodology is applied?
The author uses a policy-oriented analysis, synthesizing regulatory documents, commission reports, and academic research on financial oversight to evaluate systemic governance structures.
What topics are discussed in the main body?
The body analyzes the history of the FSAP, the failure of voluntary coordination during the crisis, and the specifics of the de Larosière Report's recommendations.
How would you characterize this paper with keywords?
The paper is characterized by terms such as European financial governance, macro-prudential supervision, regulatory arbitrage, and systemic crisis management.
What is the role of the ESRC as proposed in the reforms?
The ESRC is proposed as a new EU function for macro-prudential supervision, tasked with gathering information and issuing risk warnings to prevent future crises.
Why did the Memorandum of Understanding (MoU) fail during the crisis?
The MoU failed because it was non-binding, leading to uncoordinated, national-level responses instead of the necessary collective European action.
- Citation du texte
- Veronica Hagenfeldt (Auteur), 2009, European financial regulation and supervision and the onslaught of the financial crisis, Munich, GRIN Verlag, https://www.grin.com/document/169761
