The Proposed Regulatory System for Financial Services

Essay by magnolia_eUniversity, Bachelor's January 2010

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1. IntroductionIn February 2009 the de Larosiere Group created a number of recommendations with the aim of strengthening the European financial system to prevent another financial crisis in the future. On account of the report the European Commission has proposed a new agenda of financial recommendations that include some changes and some criticism of the Report’s recommendations.

In this paper I am aiming at evaluating the Commission’s proposals that are based on the recommendations of the de Larosiere Report in order to find out whether they address the relevant problems and whether they are more competent of preventing another financial crisis.

2. Evaluation of the Commission’s proposal based on the de Larosiere ReportThe de Larosiere Report analyses the main causes of the financial crisis and addresses three major issues that should be reformed in order to avoid a similar predicament in the future. According to the Larosiere Report the key factors that amplified the crisis are loose monetary policy, lack of transparency regarding the banking systems, failures in the ratings of structured products by credit rating agencies, weak management of firms, lack of regulation of macro-prudential risks, lack of supervision of firms and lack of coordination of global financial institutions.

In order to repair the above weaknesses, the Report recommends three major recommendations:oEU regulatory repairosupervisory repairoglobal repairAlthough the Commission welcomes the Report, it only addresses the recommended supervisory repair related issues. However, it is important to mention that the de Larosiere Report addresses some very important regulatory and global issues that could be important to deal with in order to avoid another financial crisis.

2.1 Global repair:The Report considers some crucial changes on international level in order to avoid a possible future crisis again. The main recommendation here is an international financial regulation carried out by Financial Stability Forum that...