Steps are currently being taken in this direction via public and private sector solutions, but these remain essentially ad hoc and not part of a well-established framework for maintaining and restoring, when needed, levels of capital commensurate to the needs of the European banking sector. Second: a European framework for micro-prudential supervision A more comprehensive European-wide understanding of systemic risks needs to be complemented by an effective micro-prudential supervisory framework to monitor and prevent these risks. This implies a more consistent set of regulatory and supervisory rules across Member States, together with stronger rules and practices for co-operation between supervisory authorities on cross-border groups, both in normal and crisis situations. In this context, the European Supervisory Authorities have been allocated a significant set of competences related to rule-making, enforcement of rules and co-ordination of supervision. All together, through these tools, the ESAs are expected to develop a single “EU rulebook” which is enforced consistently throughout the single financial market. This should address a major weakness in the current framework, namely the divergences across countries in key regulatory elements – for example the different components of regulatory capital used across Member States. Furthermore, the ESAs have the power to take legally binding decisions addressed to national supervisors or, in case of non-compliance, to specific financial institutions if warranted by financial stability considerations. These powers can be triggered by a breach of EU law by supervisors; disagreement between national supervisory authorities in cross-border situations; and the declaration of an emergency situation by the Council.
The integration of the financial markets caused the crisis to spread swiftly, while the vital role of the credit system in free market economies transformed it into a global recession, hitting the East and South-East European countries as well. The experience gained so far has allowed a better acknowledgment of the causes that led to the crisis and the factors that triggered and accelerated its spreading, and a reassessment of the diverse supervisory and regulatory practices. I would like our discussions on the crisis to focus on two directions: what we learnt and what we could not learn from the crisis. Among the numerous aspects debated at length, I would like to distinguish three of them: the dichotomy between the state and the market, the degree of confidence in the forecast models, and the importance of coordinating the pre-emptive measures. With respect to the “state vs. market” debate, I would like to re-stress my unwavering confidence in the market and our commitment as policy-makers to make it operate by the rules and efficiently 24/24. The last few years have witnessed the rapid development of forest models and techniques. Avoiding the tendency to underestimate their high importance to the day-to-day work of every analyst and policy-maker, we have to be aware of the restraints in these models and of the risks arising from the excessive reliance on them.