- Including enhancements in capital and liquidity requirements for firms, robust stress testing and other updates in supervision and regulatory requirements.
- Where a pre-existing mandate existed.
- Group of Thirty Occasional Paper No 83, “Macroprudential Policy: Addressing the Things We Don't Know” provides an interesting analysis of macroprudential policy going forward. It posits, inter alia, the following alternatives for defining the macroprudential objective: “Relevant ‘systemwide financial developments’ can be of essentially two kinds, one relating to risks facing the financial system at a particular time (‘conjectural’) and the other relating to the capacity of the system to withstand the crystallization of these risks (‘resilience’)…. There is, at present no clear consensus on where within this territory the boundary of macroprudential policy should lie.” While one may choose to diverge from the terminology used for the purpose of articulating and distinguishing the inherent differences and possibilities in adopting a macroprudential outlook in supervision and economic surveillance, the acknowledgement of these differences and possibilities is nonetheless critical.
- “Macroprudential Policy Tools and Frameworks. Update to G20 Finance Ministers and Central Bank Governors”, available at www.financialstabilityboard.org/publications/r_1103.pdf
- This is also refl ected in the 2011 Annual Report of the US Financial Stability Oversight Council in the following terms: “ Although there is no one way to define systemic risk, all definitions attempt to capture risk to the stability of the financial system as a whole, as opposed to the risk facing individual financial institutions or market participants.”
- See, eg, “A Safer Financial Sector to serve South Africa Better”, National Treasury Policy Document, Republic of South Africa (2011): “The primary lesson from the financial crisis is the need for a macroprudential approach to supervision… which focuses on risks within the system as a whole. All South African financial sector regulators are essentially micro-regulators, and do not focus on macroprudential risks. They are responsible for a specific sector, such as banking, insurance or securities markets, and, as such, do not monitor either the macroeconomic risks posed to financial institutions that do not fall in their jurisdictions, or the risks to other sectors of the economy” (p 31), www.treasury.gov.za/documents/national%20budget/2011/A%20safer%20financial%20sector%20to%20serve%20South%20Africa%20better.pdf
- This committee is to be co-chaired by the Governor of the South African Reserve Bank and the Minister of Finance
- Art 6, EU Regulation 1092/2010. The General Board of the ESRB with voting rights consists of the President and Vice-President of the European Central bank; the Governors of the national central banks, a member of the European Commission, the Chairpersons of the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority respectively; the Chair of the ESRB's Advisory Technical Committee; the Chair and two Vice-Chairs of the Advisory Scientific Committee while the members of the ESRB without voting rights are the president of the Economic and Financial Committee and one representative of the national supervisory authority for each EU Member State.
- http://ec.europa.eu/internal_market/finances/docs/de_laro-siere_report_en.pdf
- At Para 29.
- At Para 153.
- Art 3(2) EU Regulation 1092/2010.
- The ATC met for the first time 21 June 2011. Its work programme has now been designed to include issues of systemic risk as well as policy issues in support of the ESRB.
- Hearing on the ESRB before the Committee on Economic and Monetary Affairs of the European Parliament, Introductory statement by Jean-Claude Trichet, Chair of the ESRB Brussels, 7 February 2011, available at www.esrb.europa.eu/news/pr/2011/html/sp110207.en.html.
- Ibid.
- Ibid.
- It emphasised the need for follow up on short-term measures by Member States as well as outlining the ESRB's plan to monitor issues which “individually or collectively, could affect the stability of the EU financial system”, consideration of ways to strengthen the degree of resilience of the financial system given current challenges and its ongoing work to “enhance understanding of various structural features of the financial system, including: the identification of key linkages in the EU financial system… and the evolution of existing, and the emergence of new, systemic components within the financial system”. See www.esrb.europa.eu/news.pr/2011/html/is110622.en.html
- Hearing of the ESRB before the Committee on Economic and Monetary Affairs of the European Parliament, Introductory Statement by Mervyn King, 1st Vice Chair of the ESRB, Brussels, 2 May 2011. See www.esrb.europa.eu/news/pr/2011/html/sp110502.en.html
- Supra n 18.
- It is to be noted that at this hearing, the following comment sheds light on the objective of integrating systemic risk in the regulatory and supervisory framework: “Reform of our financial system – both its structure and regulation – is essential if we are to avoid another crisis.”
- With a projected timeline for implementation of 2012 or 2013.
- www.esrb.europa.eu/news/pr/2011/html/is111222.en.html
- Legislative changes such as Solvency II, CRD/CRR and EMIR to address insurance, banking and market infrastructure, respectively. Hearing on the ESRB before the Committee on Economic and Monetary Affairs of the European Parliament, 11 October 2011. Introductory Statement by Jean-Claude Trichet, supra n 14.
- Para 32 EU Regulation 1092/2010.
- As well as consumer protection and financial inclusion. For details of South Africa's proposals, see “A Safer Financial Sector to Serve South Africa”, February 2011, available at www.treas-ury.gov.za.
- Title X, Wall Street Reform and Consumer Protection Act 2010.
- Arising from both from both financial and non-financial organisations. See s 112(a) (1) Wall Street Reform and Consumer Protection Act 2010.
- Voting members: the Secretary of the Treasury as Chairman of the FSOC, the Chairman of the Federal Reserve, the Comptroller of the Currency, the Director of the Bureau of Consumer Financial protection, the Chairperson of the US Securities and Exchange Commission, the Chairperson of the Federal Deposit Insurance Corporation; the Chairperson of the Commodity Futures Trading Commission, the Director of the Federal Housing Finance Agency, the Chairman of the National Credit Union Administration Board and an independent member with insurance expertise. (The latter is intended to provide supervisory insight into the US insurance sector in the absence of a federal level insurance regulator.) The non-voting members of the FSOC are state banking and insurance commissioners, a state banking supervisor as well as the Director of the Office of Financial Research and the Director of the Federal Insurance Office.
- The Annual 2011 Report for the FSOC states: “[R]educing threats to financial stability will require persistence, creativity, and a willingness to adapt more quickly to changes in markets. We must work to ensure that the regulatory framework keeps pace with the evolving global financial system. We cannot wait until we have passed the point of no return to strengthen safeguards against the type of race to the bottom in credit terms or underwriting standards that often characterized periods of financial expansion. We need to be willing to act prudently and pre-emptively in the face of emerging vulnerabilities or imbalances.” Financial Stability Oversight Council 2011 Annual Report, available at: www.treasury.gov/initiatives/fsoc/Docu-ments/FSOCAR2011.pdf.
- It is noteworthy that the Committee on the Global Financial System in a 2010 report has noted, with regard to interventions or the exercise of its function by macroprudential authorities, there was greater potential for intervention by existing macroprudential authorities (more than was actually done) and further noted the failure of such institutions, even when equipped with an adequate mandate, not to realise the extent of the risks posed to the broader financial system, noting, inter alia, the need for more progress in “the institutional set-up of macroprudential policy and the related governance and accountability arrangements; and communication strategies”.
- Four challenges have been identified in the FSB Note with regard to the future evolution of macroprudential authorities, the need for further development and the interplay between national circumstances and international direction in this area. In addition to the need for a continuous and updated information fl ow as to financial market activity, and identi-fication of tools to measure and monitor systemic risk, it is noteworthy in identifying the following additional elements of effective institution building for effective systemic risk boards: (i) governance and (ii) consistency and co-ordination between different policy areas, in particular between macroprudential policymaking and other areas. On the first point, the FSB has noted the potential for systemic risk boards to err on the side of “inaction” due, inter alia, to the high short-term costs of intervention (no doubt exacerbated by uncertainty as to risks) which could be heightened by factors such as political pressures and industry (financial institution) lobbying activity. In this respect it provides as follows: “It puts a premium on governance arrangements for the chosen institutional framework that strengthens the policymaker's ability and willingness to act. Strong governance arrangements require: clear and specific mandates for the powers of macroprudential policymaking; control over macroprudential instruments that are commensurate with those mandates; arrangements that safeguard the necessary operational independence; and provisions to ensure accountability, supported by transparency and clear communication of decisions and decision-making processes” (FSB Update, p 11).
- This is acknowledged in the Group of Thirty Occasional Paper No 83, supra n 3: “The answers need to be worked out by each country, taking account of the local circumstances.”
- See, eg, “Systemic Risk in Insurance: An Analysis of Insurance and Financial Stability”, Special Report of the Geneva Association Systemic Risk Working Group, March 2010.
Law and Financial Markets Review
Volume 6, 2012 - Issue 2