Local view for "http://purl.org/linkedpolitics/eu/plenary/2013-12-09-Speech-1-223-000"
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"en.20131209.25.1-223-000"2
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"Madam President, this report on recovery and resolution of non-bank financial institutions was written to look at both the systemic weaknesses that the recent financial crisis has highlighted in our market infrastructure and to assess the possible unintended consequences of the regulatory changes that have been implemented post the crisis.
While the work on the recovery and resolution of banks has undergone a lot of international work, less has been done to improve the stability of our critical market infrastructure. Yet the level of interconnectedness of our entire financial system has long been identified as a future weakness in the financial markets as a whole. We have seen what happens when one bank goes down. We have not yet seen what happens when a piece of critical market infrastructure collapses and I hope we do not see this anytime soon.
This report focuses on that scenario, looking in particular at the possible failure of central clearing houses and settlement systems – so-called CSDs – and calling for further study of infrastructure risk in other sectoral areas, such as insurance and asset management. EMIR and the global derivatives reform agenda, once implemented, will mean more transactions essentially cleared at a regulated clearing house. While these institutions performed well during the 2008 crisis, they did not at that time deal with the volume of transactions that they necessarily will in the future.
CCPs have already been identified by the Financial Stability Board and CPSS-IOSCO as a possible new source of systemic risk. The macroprudential tools for supervision that are provided for in EMIR should, however, provide the necessary safeguards to ensure that CCPs really do bring stability and greater transparency to the financial markets. However, in the event of a failure, we need to have in place a legally sound framework for CCPs: should they themselves have recovery plans, and what powers do supervisory authorities need to have to intervene in their operations?
This report emphasises that day-to-day operations should continue to create the right incentive structures for good governance of CCPs so that banks, as clearing members, are still highly incentivised to participate in auctions, so that CCPs themselves are not encouraged to clear products for which they cannot appropriately manage the risk, and indeed that end users of these clearing members – the clients and investors – are not exposed to more risk than they can understand or absorb.
It is clear that should a counterparty fail or some operational failure cause the CCP to run out of margin, it should have the default waterfall to protect its members and the system users. The CCP default waterfall needs to be clearly defined and communicated. In debating the line between recovery and resolution, Parliament reached a strong consensus around the view that if a CCP was able to agree measures amongst the clearing members to further refill this default waterfall, then that was recovery, albeit under the supervision of the resolution authority.
However, if client assets were to be involved, by variation haircut margin or any other tool to disseminate losses more broadly, this could only be done under the auspices of resolution authorities. So indeed we need to make sure that we have systems in place such that if a CCP exhausts its default waterfall it cannot raid pension funds or asset managers’ resources because of its governance failures. If a CCP’s management has the option of using client assets before exhausting its own capital and utilising its own shareholder money, then there is no incentive for good governance to balance out their profit incentive. Indeed, client assets should not be involved in recovery, only in resolution.
My concerns with CSDs are slightly different but again emerge from regulatory concerns. There are issues here. We have a CSDR legislation in place, coming through negotiations trialogue at the moment. This report calls upon the Commission to deliver a legislative response for recovery resolution as soon as possible."@en1
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