Axel A Weber: How to implement efficiently the EU regulatory and
supervisory package proposed by the de Larosière group in the EU and
global context?
Introductory statement by Professor Axel A Weber, President of the Deutsche Bundesbank,
at the Financial Forum 2009, Gothenburg, 30 September 2009.
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1 Introduction
Ladies and gentlemen, Mr Solbès
Thank you for allowing me the opportunity to elaborate on some aspects of the
implementation of the de Larosière recommendations.
Coming from Germany, where the Bundesbank is not the supervisory authority but is
involved in the supervisory process, I would first like to focus on cooperation between
national central banks and supervisors before turning to the role of the new EU authorities.
2 How to ensure appropriate cooperation between national central banks and
supervisors in the EU countries where these functions are segregated?
The question correctly implies that close cooperation between central banks and supervisors
is essential. Central banks have an undisputed responsibility in the field of financial stability.
They can benefit from their traditional focus on systemic risk and, especially, from their
knowledge of area-wide developments in the money and securities markets and in payment
and market infrastructures.
Establishing close cooperation with supervisors ensures that synergies between these
central bank and supervisory activities can be exploited. In addition, close cooperation
enhances the efficiency of the supervisory system by reducing overlaps of work. In fact, one
lesson from the current crisis is the need for a close interaction between micro- and
macroprudential analysis.
Practical cooperation can be organised fairly informally with regular high-level discussions on
how to deal with strategic issues and problems as well as by the creation of working groups
to deal with specific topics.
On a more formal basis, cooperation between central banks and supervisors could be
organised via "Domestic Standing Groups" in which the Ministry of Finance may also take
part, ensuring the participation of all parties with a role in safeguarding or restoring stability.
In Germany, BaFin, the Bundesbank and the Ministry of Finance have held regular meetings
in such a format since 2002.
As is the case in Germany, cooperation between national central banks and supervisory
authorities could be even more formalised. The central banks could be substantially involved
in the supervisory process. In Germany, the Bundesbank - in close cooperation with the
supervisory authority BaFin - is entrusted with the ongoing supervision of institutions,
whereas the sovereign functions rest with the supervisor.
Needless to say, the division of labour has to be clearly defined to avoid overlaps. Naturally,
this requires statutory definitions of tasks and responsibilities. For one thing, we have
sovereign measures issued by the financial supervisor: regulatory measures concerning
institutions, especially general decrees and administrative acts, including auditing orders. For
another, the central bank is responsible for the ongoing monitoring of institutions, including
the evaluation of documents submitted by institutions and external auditors' reports, as well
as performing and evaluating audits of banking operations.
But an efficient division of labour also needs additional guidelines or cooperation agreements
which describe supervisory instruments in more detail and lay down procedures. Such
guidelines or agreements relate to, for example, supervisory planning, meetings with senior
management, drawing up banks' risk profiles but also further details of reporting and
notification systems.
I think it is fair to say that this model of a formalised close cooperation worked pretty well in
the crisis.
Still, there is a lingering debate in Germany on a more far-reaching reform of banking
supervision. As you may be aware, this will probably also be a topic for the new coalition
government that is about to be formed.
The Bundesbank stands ready to assume greater responsibilities in supervision. Therefore,
the debate should be on how to design the supervisory framework for the future.
I expect that the Bundesbank would be closely involved in any reform initiative right from the
outset and that we would be given the opportunity to provide our own input in designing a
revised supervisory structure in Germany.
We are convinced that the independence of monetary policy and a more prominent role in
the supervision of banks and insurance companies can be reconciled.
Any such reform must contribute to aligning further the national and European supervisory
structures as they evolve.
3 Success factors for level 3 committees evolving towards 3 EU authorities?
First, I would like to say that I explicitly welcome the Commission proposals on the design of
the new supervisory architecture in the EU. Given the complexity of the whole matter, the
proposals are a very helpful and crucial milestone. They now have to be analysed and
discussed thoroughly. We have a unique opportunity to reshape the supervision of the
financial system in order to make it more resilient. Therefore, we have to be very careful to
avoid blind spots as well as inefficient overlaps in the competencies and the practical work of
the various institutions involved in the supervisory process, at the national as well as at the
EU level.
According to the ECOFIN conclusions, the "European System of Financial Supervisors"
should be established as an operational network with shared and mutually reinforcing
responsibilities. At the EU level, we shall have the three new "authorities" and a
crosssectoral committee with specific tasks in fostering convergence of supervisory rules and
practices in Europe, whereas the national supervisors are to remain responsible for ongoing
supervision.
Experience of the crisis indicates that strengthening supervisory coordination is crucial in
dealing with the current problems and helping to restore confidence.
The objectives of the new framework, according to the ECOFIN/European Council, are to
upgrade the quality and consistency of national supervisors; to strengthen supervision of
cross-border groups, in particular, by setting up supervisory colleges for all major EU
financial groups and by moving towards a single rule book.
The ECOFIN and the European Council also stipulate that the activities or decisions of the
new authorities should not impinge on the fiscal responsibilities of the Member States and
that any binding decision by the new authorities or the Commission must be subject to
Community courts.
These key messages from the ECOFIN conclusions match perfectly with what might be
considered to be the "success factors" of the new framework. Due account should be taken
of these when discussing and deciding the details: continuation of a cooperative working
style within what should be an operational network rather than a centralised supervisory
system.
The envisaged binding powers of the new authorities in relation to the national supervisors
should be interpreted as a means of speeding up the process of convergence and of
strengthening the supervisory system, not as a sign of a hierarchy. It should not be forgotten
that the decision-making bodies of the new authorities comprise the national supervisors.
In this context, I do not agree with the proposed possibility of decisions taken by the new
authorities being communicated directly to financial institutions. I do not want to get into a
discussion on fundamental legal issues. However, even from a political perspective or with
regard to a possible response on the part of the general public, it is important that one should
refrain from direct intervention vis-à-vis financial institutions. Communication with the
institutions in such matters is solely the responsibility of the competent supervisors.
There was a political consensus to upgrade the three committees to authorities with specific
powers, including some binding powers over the national supervisors. However, the current
Commission proposal goes further, giving the three authorities direct powers to take
decisions that affect the industry. Apart from the legal issues this raises, this approach risks
establishing a parallel system of national responsibility - which, incidentally, ECOFIN is in
favour of maintaining -, and decisions from a supra-national authority. Taking due account of
the fundamental principles of subsidiarity and proportionality, it would be more appropriate to
address recommendations to the national supervisory authorities only under the terms of the
earlier consensus.
As concerns the appropriate institutional settings, the structure of the new authorities should
ensure a balance of full involvement and efficiency. With regard to the composition of the
"Board of Supervisors" at the EBA, it is important that supervisors and central banks are
represented, fully reflecting their responsibilities at the national level. This is also important in
order to create a close link between macroprudential and microprudential analysis.
Last but not least, even though strengthening supervisory powers at the EU level is
important, these reforms absolutely must be aligned with global initiatives, given that major
European banks are also acting globally. In this regard, it is essential to establish global
supervisory colleges which can adapt their composition and procedures to the individual
supervisory needs of each specific financial group.
Thank you for your attention. I am looking forward to your comments.