ANNUAL REPORT 2008 - Polymer Bank Notes of the World

2 FINANCIAL REGULATION AND SUPERVISION2.1 GENERAL ISSUESFollowing the conclusion of the review of theLamfalussy framework 6 for financial regulationand supervision, conducted by the EuropeanCommission with contributions from theEurosystem, the emphasis in 2008 was on theimplementation of the recommendations adoptedby the ECOFIN Council in December 2007.First, the Level 3 Committees 7 amended theirrespective charters to introduce the possibilityof applying qualified majority voting. Althoughthe committees’ decisions are not legally bindingfor their members, those who do not complyshould at least explain their decisions publicly.Second, the Level 3 Committees enhanced theiraccountability by starting to transmit their yearlywork programmes to the European Commission,the EU Council and the European Parliament toallow them to express their views on the keypriorities and give policy advice on supervisoryconvergence and cooperation.Third, the Member States were invited tointroduce a European dimension into themandates of their national supervisors. The ECBparticipated in the discussions in the variousEuropean committees on how to implementthe ECOFIN Council’s recommendations.On 14 May 2008 the ECOFIN Council askedthe Commission to revise the Decisionsestablishing the Level 3 Committees toinclude specific tasks to foster supervisoryconvergence and cooperation. The Eurosystemon 7 November 2008 adopted an opinion onthe revision of the Decision establishing theCommittee of European Banking Supervisors(CEBS). Among other things, the ECBcommented on the appropriate division oflabour between CEBS and the BSC with regardto the risk assessment of the EU banking sector.While the BSC, in line with its mandate, focuseson identifying the main prudential risks for thefinancial system and the banking sector, CEBSconcentrates on the proactive identification ofspecific risks, supervisory concerns and possiblepolicy actions.In addition to strengthening the Lamfalussyframework, authorities have launched a numberof concrete initiatives at both the internationaland the European level to address systemicconcerns and identify the possible long-termeffects of policy proposals related to the revisionof the current regulatory and supervisoryframework. At the international level, the FSFundertook work to analyse the challenges thatsupervisors and regulators face with regard tothe potential pro-cyclical effects of the capitaladequacy regime, loan loss provisioningpractices, compensation arrangements andthe valuation methods applied by financialinstitutions.At the EU level, the President of the EuropeanCommission established in October 2008 anindependent High-Level Group on EU financialsupervision that made recommendations inFebruary 2009 on strengthening Europeansupervisory arrangements covering all financialsectors. 8 The informal ECOFIN Council meetingon 12-13 September set up a working group,in which the ECB was represented, with amandate to assess the range of policy responsesthat could help to reduce the cyclical swingsinherent in the activities of the financial system.In addition, the ECB was asked to produce aregular report on the potential pro-cyclicalityof capital requirements under the CapitalRequirements Directive. To this end, the ECBworks closely with the BSC and CEBS, and apreliminary report, which is based on qualitativeinformation from competent authorities pendingthe availability of supervisory data series, wasproduced at the end of 2008.6 The Lamfalussy approach is a four-level process for approvingsecurities, banking and insurance legislation. For more details,see the report entitled “Final report of the Committee ofWise Men on the regulation of European securities markets”,15 February 2001, which is available on the EuropeanCommission’s website. See also the ECB’s Annual Report 2003,p. 111.7 Level 3 of the Lamfalussy framework focuses on strengtheningsupervisory convergence and cooperation. Three committeescarry out this work: the Committee of European BankingSupervisors (CEBS), the Committee of European SecuritiesRegulators (CESR) and the Committee of European Insuranceand Occupational Pensions Supervisors (CEIOPS).8 http://ec.europa.eu/commission_barroso/president/pdf/statement_20090225_en.pdfECBAnnual Report2008155