Financial regulation: How to cope better with future crises?

Mr Strauss-Kahn said thanks to decisive action last year the world avoided another "great depression" but noted that growth is reliant on taxpayers' money. "We should not exit from this support too early as the recovery is fragile," he said. The Chairman of the G-20's Financial Stability Board Mario Draghi said the economic recovery is still very fragile and "unevenly dispersed across the globe".

 

As growth picks up the willingness to work together is receding, Mr Strauss-Kahn said, warning that if there is another crisis people won't be prepared to use taxpayer's money to resolve it.   

 

Some MEPs worried that over-regulating financial markets in Europe might make them uncompetitive and that financial service providers would move to more attractive jurisdictions.

 

The European Commissioner for Internal Market and Financial Services Michel Barnier told the Hearing: "We must reject the idea of auto-regulating financial markets.  For myself I never believed this possible". He cautioned however about over-regulating.

 

 

Mr Barnier said, "we are emerging from the worst crisis since 1929 and it's not over yet. Can we exit the same way we entered this crisis? No. We want to see better, more equitable, greener, growth."

 

French Liberal Sylvie Goulard presented the EP's draft position of having a tighter-knit supervisory architecture at EU level rather than the more fragmented option proposed by the Commission.

 

Mr Draghi, who is also the head of the Italian Central Bank, said: "We are all really in one boat but there is no single solution, 'a silver bullet' that could solve financial market problems in all countries as systems are too diverse. What regulation has to ensure is that financial institutions have more and better-quality capital, less debt and no perverse incentives to take on excessive risk."

 

 

There was agreement that global imbalances were at the root of the crisis, it being unsustainable for some countries to continuously consume more than they produce.

 

Mr Strauss-Kahn said the problems of imbalances remain: those with trade deficits (US) have to save more, those with trade surpluses (China, Germany) have to spur domestic demand. His key message was that "without international collaboration we cannot be successful".

 

Romanian MEP Theodor Dumitru Stolojan from the centre right European People's Party asked whether credit default swaps (CDS) related to sovereign bonds should be banned whereas Belgian Green MEP Philippe Lamberts went even further and asked whether CDS were necessary at all.  Mr Strauss-Kahn said that contrary to some beliefs sovereign bonds CDS was not such a big share of the market. 

 

German Socialist Udo Bullmann raised the potential risk of legislative paralysis on both sides of the Atlantic.  "How can the EU and the US coordinate their systems?" he asked.  Mr Draghi said that it was best to de-dramatise the EU-US rift.  "It is not a problem if the tools are different.  Harmonisation is mostly needed in the two areas of capital requirements and over the counter derivatives," he said.

 

 

Asked by Greek Socialist Anni Podimata if a future European monetary fund could be the solution for another crisis like the one which hit Greece, Mr Draghi said such a fund "should always be considered as the icing on the cake".  The bulk of the work always had to be through fiscal consolidation. 

 

Mr Strauss-Kahn said that it was difficult to comment since a number of good, but different models, had been floated for this type of fund. "I would be happy to comment - if I knew what it was. Everyone explains and the explanations all sound good - but they are all different."

 

He also stressed: "The IMF has no problem working with a regional institution, but there is a need of a multilateral institution overarching the whole system."