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SPEECH/ 10/52

Michel Barnier

Member of the European Commission responsible for Internal Market and Services

Informal remarks - restoring confidence in financial markets

Figures and graphics available in PDF and WORD PROCESSED

Dinne r hosted by the British Bankers' Association

London, 1 March 2010

First of all, thank you for welcoming me here tonight. It is a pleasure for me to meet you all this evening in the City – the financial powerhouse of Europe.

Madam Chair, I know the close interest that your Association took in my appointment a few weeks ago.

Well, this evening, I would like to assure you of at least one thing.

That interest is mutual.

Before we start our discussion, allow me to make a few remarks.

* * *

It is now nearly 2 years ago that the crisis started. I believe we can say that we succeeded in at least one thing. Averting the worst. And that is an achievement in itself.

But this achievement should not hide the extent of the damage done to our economies.

The worst performance in GDP growth in Europe since the 1930's. 23 million unemployed.

As for industrial production and fiscal consolidation, we now find ourselves where we were 20 years ago!

It's a " Great leap backwards ".

So the challenges facing us are clear.

Do we want to create a solid base for recovery and remain competitive?

D o we want to continue to support our social market economy model?

D o we want to cope with massive public debt and an ageing population?

D o we want to find new answers to the world's challenges?

If the answer to any of these questions is yes, then we will need growth . More than ever.

* * *

What does this mean for me as the new Commissioner for Internal Market and Services?

What does this mean for the financial sector?

If we don't restore confidence in the markets, there will be no growth . We need to put the financial sector at the service of the real economy and its people. An efficient and innovative financial sector will provide the engine to power our companies.

The simple point is:

To restore confidence, we need regulation. And much better supervision.

But smart , effective and proportionate regulation.

Built on the fundamental principles of better regulation and evidence-based policymaking .

The greatest asset of the EU and for the future remains our Single Market . I have ambitious plans for the relaunch of the Internal Market. But I will concentrate on banking matters tonight.

I have set myself a number of priorities which I would like to share with you.

I have said that we cannot have growth without restoring confidence in financial markets .

1 So my first priority is: well supervised institutions

Our objective must be to improve supervision all round in Europe. A big problem in one country can rapidly spill over to others. If day to day supervision is to remain principally at the national level, we need:

A Single Rule Book, coupled with strong supervisory coordination and real information sharing. And trust between home and host; effective dispute settlement amongst supervisors; fit-for-purpose emergency and crisis management; prudentially sound, interconnected infrastructure (e.g. clearing and settlement, payment systems …); and a powerful macro-prudential early warning system.

We need to find the right political agreement. It will require flexibility from all sides. I will work hard for an ambitious, but realistic result. We must conclude by mid-year if the new authorities are to start work at the beginning of next year.

2.  My second priority is: well capitalised institutions

The G20 leaders agreed that our banks need more and better capital .

We are working with our partners in the Basel Committee to implement this.

The main issues are:

  • getting more capital into the system and of better quality;

  • proper capital levels for the trading book;

  • liquidity standards;

  • dealing with procyclicality;

  • and

  • possible leverage ratios.

I believe the EU and the Basel Committee share the same concerns. But these are complex issues.

Finding the right calibration and sequencing will be essential to make sure that the cumulative effect of these reforms does not constrain the credit markets and the recovery.

This is why we are dedicating the first half of 2010 to assessing the impact of these proposals, at global and EU level, before making any proposals.

This will be for the autumn.

We are also discussing the treatment of systemically important financial institutions.

We are looking with interest at President Obama's proposals . We share his aim of reducing systemic risk in the financial sector. However, I do not think that a cap on size and scope is the right solution in the European context.

I favour a more comprehensive approach. It is a complex area but we cannot shy away from it. I will not shy away from it.

3. My third priority is: responsible institutions

Let's be honest - Many financial institutions were not up to the job when managing risks.

This is why I want better corporate governance .

In particular we will need competent directors who have the ability to fulfill their function. Challenging the management and asking the right questions.

This is especially true for financial institutions where business models are among the most complex.

We need strong risk management systems with independent risk committees.

Outside the boards, the right checks and balances will have to be in place. Shareholders have been too absent in the past.

At the same time, supervisors need to pay much closer attention

Ladies and Gentlemen, my list of priorities is long. As agreed with our G20 partners, we need to fill the regulatory loopholes . I will do this by addressing issues such as Central Clearing Parties and the over-the-counter derivatives markets.

Transparency, safety and integrity are key.

Finally, let me add that we live in a globalised world . We cannot build our regulatory reform agenda alone. That is why I intend to work very closely with our American friends and other global partners. We need global convergence. And we need a global level playing field . 2010 is the crucial year for ensuring implementation of the London and Pittsburg Summit declarations.

The EU has an important role to play. On the G20 roadmap in particular, we need to lead by example.

But I do not want our firms to be victims of free riders in the G20 process.

Strict implementation is the minimum we will expect from our partners.

The credibility of our response to the crisis is at stake.

* * *

Ladies and gentlemen,

Madam Chair,

I have come to London to listen to you and to your views. I look forward to our discussion.

Thank you very much for your hospitality and welcome.

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