Local view for "http://purl.org/linkedpolitics/eu/plenary/2007-09-05-Speech-3-196"
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"en.20070905.21.3-196"2
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"Mr President, Commissioner, ladies and gentlemen, the full extent of the instability sensed on the global financial markets is not yet clear. The weak points of global finance are the poor creditworthiness of borrowers on the US mortgage market and the errors made in assessing credit risks of assets and/or in auditing these. We could ask what happened to Basel II in this phase in the United States; I realise that it has not been brought in yet, but it would have been helpful.
In the United States, a mortgage volume of USD 120 billion has been adjusted up to now. This fact alone has triggered rate-adjustment shock of the proportions known. Approximately 700 billion more mortgages are to be adjusted in the next two years. Heightened investor sensitivity has exacerbated the dilemma, with confidence and the appetite for high-risk investments down. Even boards of directors of banks are now admitting that they did not know what they were doing. Lack of investor confidence and realistic assessments are currently preventing a return to normal levels – a process that will undoubtedly take some time and will not even spare the professionals of banking supervisory bodies.
Confidence cannot be expressed statistically by mathematical formulae. However, transparency builds and maintains confidence and facilitates risk control. Commissioner, you mentioned Solvency II. The risks from hedge funds and sub-prime mortgages have tended to be low thus far in the insurance sector; and that is the way it should stay. That is why Solvency II is intended to provide the right starting points and incentives.
Under the present proposals, alternative investments such as hedge funds and asset-backed securities, which are often also exposed to sub-prime risk, will be subject to own-capital backing of 45% as a standard consequence of Solvency II. This may seem high at first glance, but it provides a clear incentive for enterprises to push an envisaged hedge fund to disclose its investment to the investor. In my opinion, one principle applies here, and that is that only those who have the necessary know-how themselves should be making higher-risk capital investments.
The European Parliament has long been calling for transparency in specific financial products and mechanisms. A response by the Commission to the creation of further transparency rules for the 9 000 and more existing hedge funds is overdue. Transparency rules for credit rating agencies are also needed. A more realistic assessment of global credit risk would benefit both.
Over the past few years, European budgets and the economy have been incurring multiple debts. The sin of taking out loans at enticingly low rates of interest automatically produces imbalances between monetary and real-economy performance."@en1
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