Local view for "http://purl.org/linkedpolitics/eu/plenary/2008-09-24-Speech-3-318"
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"en.20080924.33.3-318"2
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"International financial markets have now been in turmoil for about one year and the interaction between accumulating losses in the financial system and the deteriorating global economic outlook make it very difficult to predict when the turmoil will end. The current situation in financial markets illustrates how the problem that seemed initially limited to a specific market segment, for the United States and sub-prime mortgages, can rapidly affect the international financial system as a whole.
In a broader context, concrete actions to address weaknesses in the framework for financial markets are being addressed. Further to the Economic and Financial Affairs Council discussion in October 2007, a road map of regulatory actions has been adopted.
While this road map applies only to the EU, it is consistent with corresponding initiatives at a global level. The objectives of the road map are to enhance transparency, address valuation issues, strengthen prudential supervision of banks and examine structural market issues by analysing relevant weaknesses in the regulatory framework and formulating appropriate policy responses. The Commission is currently working to ensure that this road map is delivered on time, including concrete initiatives on enhancing transparency for investors, markets and regulators, revised capital requirements for banks and the regulation of credit-rating agencies.
In this respect the Commission has completed its external consultation on proposed changes to the Capital Requirements Directive and intends to come forward with a proposal during the coming months.
It is also considering legislation on credit-rating agencies. In this context, a public consultation was launched at the end of July 2008.
Progress has also been achieved with regard to supervisory cooperation across borders within the EU with the entry into force of a new memorandum of understanding at the beginning of July 2008.
More generally, one of the aims of the Lamfalussy review is the improvement of the new supervisory arrangement where the Commission plans, for instance, to revise the decisions on the EU committees of supervisors.
In all its efforts, the Commission is well aware of the global dimension of the required response and in this respect we are coordinating our responses with our partners.
As losses linked to the US sub-prime mortgages have spread via interconnected markets and complex financial products, several key credit markets have been disrupted. Problems in the functioning of these markets have been felt, though, most severely within the banking sector, where substantial losses have been incurred and market liquidity shortages have required support by central banks.
Nevertheless, a number of financial institutions in the United States and in Europe have been rescued from insolvency after experiencing serious difficulty in accessing liquidity. These public sector interventions have reflected concerns about risks to financial stability and have been met by a generally positive response from financial markets.
In the United States, as a consequence of the mis-selling of sub-prime mortgages in the past, reset of these mortgage contracts is expected to continue until mid-2009. Problems in the international financial market remain acute – you have already discussed these issues today – driven partly by developments in the financial sector itself and partly by the implications of the deteriorating economic environment.
Uncertainty about the ultimate scale and location of credit losses continues to undermine investor confidence, and the total losses so far disclosed by banks remain well below estimates for overall losses across the financial system based on various projections of future mortgage losses.
Banks are increasingly forced to recapitalise, often at high cost and in difficult market conditions. Moreover, problems in the banking sector are increasingly reflected in tightening lending standards and reduced bank lending activity.
The implied higher financing costs and the reduced access to credit are likely to interact with other headwinds, such as high oil prices and rising inflation, facing the global economy.
On this basis, the economic outlook for the EU and the euro area economy has further deteriorated since the Commission’s spring 2008 forecast. Economic prospects vary across the Member States. As economic conditions deteriorate, the pressure on bank balance sheets is set to continue.
Fragile market conditions require continued vigilance from public authorities, notably central banks, supervisors and finance ministers, to monitor market developments. The need for further interventions in the case of systemic crisis cannot be ruled out."@en1
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