Financial Integration and Stability: Lessons for Clearing and Settlement

Transcription

1 Financial Integration and Stability: Lessons for Clearing and Settlement John Berrigan, European Commission Frankfurt am Main, 22 April 2008 JOINT ECB-COMMISSION CONFERENCE THE SAFETY AND EFFICIENCY OF POST-TRADING ARRANGEMENTS IN EUROPE

2 Outline of presentation Part 1: Relevant themes from the global financial turmoil Part2: Financial integration and stability in the EU Part 3: Lessons for C&S integration Summing up JOINT ECB-COMMISSION CONFERENCE THE SAFETY AND EFFICIENCY OF POST-TRADING ARRANGEMENTS IN EUROPE 2

3 Themes from global financial turmoil Inter-connectedness of markets and speed of cross-border crisis transmission Spillovers between regulatory regimes Limitations of existing crisis control procedures Positive market response to co-operation among central banks Conclusion Part 1: Essential to bring international financialstability arrangements into line with integrated and globalised financial markets JOINT ECB-COMMISSION CONFERENCE THE SAFETY AND EFFICIENCY OF POST-TRADING ARRANGEMENTS IN EUROPE 3

4 Financial integration and stability in EU (1) Debate on integration versus stability more advanced in EU Integrated financial markets more resilient but require stability arrangements to manage higher contagion risk Potential misalignment of incentives between private and public actors in integration process Removal of barriers to integration (SMP, euro, FSAP) encourages cross-border activity among private actors Authorities retain national fiduciary responsibilities in a decentralised budgetary policy framework JOINT ECB-COMMISSION CONFERENCE THE SAFETY AND EFFICIENCY OF POST-TRADING ARRANGEMENTS IN EUROPE 4

5 Financial integration and stability in EU (2) Risk of inconsistency between integrated markets and nationally-based stability arrangements Response has been to enhance cross-border co-operation in stability arrangements Several reforms in place, e.g. Lamfalussy framework - to be strengthened MoU on cross-border crisis management - to be extended Periodic crisis simulations to be repeated Colleges of supervisors to be implemented Substantial progress but further to go JOINT ECB-COMMISSION CONFERENCE THE SAFETY AND EFFICIENCY OF POST-TRADING ARRANGEMENTS IN EUROPE 5

6 Financial integration and stability in EU (3) More ambitious reforms only possible in medium term, e.g. Home-host relationship; transfer of assets; interaction of deposit guarantee schemes; winding up of cross-border groups; burden sharing Reforms impacting on sovereignty require high-level political engagement Need to bridge gap between political and technical levels in financial integration process (parallel with Giovannini reports) Conclusion Part 2: EU ahead in reform of stability arrangements but still playing catch-up with market developments JOINT ECB-COMMISSION CONFERENCE THE SAFETY AND EFFICIENCY OF POST-TRADING ARRANGEMENTS IN EUROPE 6

7 Lessons for integrating C&S (1) Securities markets not typically associated with systemic risk, but infrastructures can be systemically relevant Systemic risk now more of an issue as many infrastructures transformed from public to private utilities Integration of C&S highlights national differences in risk management procedures within infrastructures Differences could raise stability concerns in context of C&S integration JOINT ECB-COMMISSION CONFERENCE THE SAFETY AND EFFICIENCY OF POST-TRADING ARRANGEMENTS IN EUROPE 7

8 Lessons for integrating C&S (2) Stability discussion in Giovannini II, focus on decentralised vs. consolidated infrastructure Regulatory aspects in Commission Communications, in context of Directive Code of conduct not dealing directly with issues of risk ESCB-CESR standards to provide basis for convergent risk management and regulation JOINT ECB-COMMISSION CONFERENCE THE SAFETY AND EFFICIENCY OF POST-TRADING ARRANGEMENTS IN EUROPE 8

9 Lessons for integrating C&S (3) ESCB-CESR standards minimum required to safeguard stability in integrated C&S environment Even if all Giovannini barriers removed and CoC implemented, how should authorities react without common risk standards? Opportunity to work on risk standards in parallel with integration of marketplace Should convergence in risk management be seen as 16 th Giovannini barrier? Conclusion Part 3: Integration of C&S may lag but opportunity to establish appropriate stability arrangements early in process JOINT ECB-COMMISSION CONFERENCE THE SAFETY AND EFFICIENCY OF POST-TRADING ARRANGEMENTS IN EUROPE 9

10 Summing up Essential to bring international financial-stability arrangements into line with integrated and globalised financial markets Reform of EU stability arrangements already underway but still playing catch-up with financial-market developments Difficult decisions ahead but financial turmoil offers possibility to change terms of debate Stability arrangements relevant to C&S integration also, with opportunity to act early and avoid playing catch up JOINT ECB-COMMISSION CONFERENCE THE SAFETY AND EFFICIENCY OF POST-TRADING ARRANGEMENTS IN EUROPE 10

11 Thank you JOINT ECB-COMMISSION CONFERENCE THE SAFETY AND EFFICIENCY OF POST-TRADING ARRANGEMENTS IN EUROPE 11