European commissioner for internal market and services gives Reform Scotland spring lecture at Edinburgh Business School
Charlie McCreevy, the European commissioner for internal market and services, has urged European finance ministers not to pander to populism in their response to the financial and banking crisis.
In a speech at Edinburgh University Business School last week, McCreevy warned that a heavy-handed regulatory response would handicap European financial institutions and be disastrous for European economies. He said that a crowd-pleasing tightening of regulation would squeeze out risk-taking and “condemn us to lacklustre growth and high levels of unemployment.”
McCreevy acknowledged there are “very strong political undercurrents” who now want to “regulate risk out of the system” and said these undercurrents will probably to intensify after European parliamentary elections next month.
Giving the spring lecture of think-tank Reform Scotland, Kildare-born McCreevy denied allegations that he is a “free market Taliban”, adding that he has long believed “that Europe would not be able to regulate itself out of this crisis.”
The commissioner, who steps down in October, endorsed further cross-border collaboration between regulators but stressed that he opposes having a single EU supervisor for all financial institutions in Europe. Instead he favours “colleges of supervisors for cross-border institutions” plus a new European systemic risk council to be unveiled by October.
Colin McLean, managing director of SVM Asset Management in Edinburgh, said these moves will “inevitably emasculate the Financial Services Authority.”
The commissioner wants to ensure that developed nations implement the policies that they agreed at the April G20 summit. He said if some just pay “lip-service”, financial players in regions that do implement them, such as the EU, risk facing an unlevel playing field.
McCreevy said: “We are striving to put in place a framework which will allow our financial sector to perform efficiently, which will give regulators the necessary tools to supervise market actors, which is sufficiently robust to avert crises such as the one last autumn and which will offer investors in financial services the confidence they need and the protection they deserve.”
He said the problem of impaired assets on bank balance sheets needs to be urgently addressed. “Whether governments decide to create bad banks, good banks, special vehicles or even nationalise them — it is imperative that some solution is found. Otherwise, we’re going to delay our economic recovery. Addressing this issue is for me the number one priority today.”
He pointed out that smaller fund managers – hedge fund managers with less than €100m under management and private equity houses with less than €500m under management – will be exempted from a controversial new European directive on alternative investment fund managers (AIFM), which means such organisations will succumb to regulation for the first time.
On executive pay, McCreevy said that EU legislation due out later this year will require banks that persist in promoting short-term risk-taking through their bonus structures to find additional capital. He added: “Free market liberalism is under attack. But it is not dead, not least because no one has found a better alternative.”
An edited version of this article was published in The Sunday Times on 17th May 2009.