Wednesday, October 06, 2010

EU Securities and Banking Authorities Will Play Data Gathering Role for European Systemic Risk Board as Office of Financial Research Plays for FSOC

It appears that the new European Systemic Risk Board that will come into being on January 1, 2011 will utilize the new European Supervisory Authorities for Securities and Banking to provide the information the Board will need to do its job of macro-prudential regulation of systemic risk to the EU financial system. This was the message deleivered by European Central Bank VP Vitor Constancio at a Brussels financial forum. 

The ESRB is similar to the Dodd-Frank created Financial Stability Oversight Council. Dodd-Frank also created an executive agency, the Office of Financial Research, to collect data on financial firms and their activities, and provide analytical tools, to aid the work of the Council. The logic behind the Office is that it makes  no sense to create a systemic risk regulator and not give such regulator the tools needed to measure and monitor systemic risk.

The ECB VP recognized that a condition precedent for effective macro-prudential regulation by the Board is comprehensive information on the financial system that can be used for the assessment and detection of systemic risk. In  that regard, he envisons that the new EU authorities for securities and banking can, along with central banks and the European Commission, provide the Board with the information it needs to monitor and assess sytemic risk to the markets. In addition, the Board can ask the banking and securities authorities to provide data on individual financial institutions. Work has already begun, said the central banker, on developing procedures for regular information sharing between the ESRB and the securities and banking authorities. He believes that this will provide the Board with an  ample supply of information on systemic risks. 

Thus, the EU securities and banking authorities will contribute to the macro prudential function of assessing systemic risk with information, analysis and regulatory advice. The EU legislation provides the basis for close collaberation between the ESRB and the securities and banking supervisory authorities, ranging from mutual board participations to cooperative duties in monitoring and assessing systemic risk and, of course, information sharing.