Reforming the financial system

The EU is taking unprecedented measures to restore stability to financial markets and to get credit flowing again. These must be matched by robust reform to prevent a repeat of the crisis and to rebuild trust in the banking industry.

Financial products, activities and participants must be effectively regulated and supervised. Ethical behaviour should be promoted and unethical behaviour sanctioned. To achieve a lasting recovery, Europe must have a reliable financial market that fulfills its core function -- providing mortgages, pensions and loans.

The EU has already taken steps to increase protection for bank depositors, make credit ratings more reliable, improve risk management in financial firms and reinforce the solidity and supervision of banks and insurance companies. The union is also moving to tighten rules on hedge funds and to curb banking pay practices that encourage recklessness.

On an issue crucial to unlocking credit, the commission has recommended ways countries can deal with “impaired” assets - those that are worth less than the value listed on the company's balance sheet. Many banks remain reluctant to issue loans out of concern for their potential losses on impaired assets.

Looking ahead, the EU has set out a detailed roadmap for improving the regulation and supervision of its financial markets and institutions. The plan calls for measures to promote propriety, integrity and transparency and to safeguard against system-wide threats and excessive risk-taking. It foresees a European structure for supervision of financial firms active in several member countries and a European body to oversee the stability of the financial system as a whole.

The EU is also driving reform at the international level. In line with EU recommendations, a new global agreement gives international financial institutions a larger role in monitoring economic risks. Other changes include an end to tax havens that refuse to cooperate with tax authorities from other countries.

 

Source: European Commission

http://ec.europa.eu