Empower Users of Financial Information as the IASC Foundation's Stakeholders. Testimony to the IASC Foundations's Constitutional Review Round Table in London, 19 June 2008. Bruegel Policy Contribution, July 11, 2008

Nicolas Véron comments on the proposal for governance reform ('constitution review') published in May 2008 by the IASC Foundation, the private-sector body which oversees the setting of International Financial Reporting Standards (IFRS). He emphasizes the unprecedented nature of this global governance experiment and advocates more direct representation of investors as the primary stakeholders of international accounting standard-setting, as well a more thorough consultation process. EXECUTIVE SUMMARY. The creation of a new body with authority over Trustee appointments and reappointments is a crucial step for the IASC Foundation. This body is likely to be granted more authority in the future over other key governance functions, including the Foundation’s funding. In this respect, the proposed Monitoring Group contains significant flaws, the primary one being its inability to credibly represent at global level the investors and other capitalmarket users which should be considered the Foundation’s key stakeholders. Moreover, the very short timetable proposed for the first part of the Foundation’s Constitution Review is not warranted by the circumstances. The Foundation's Trustees should take a step back and consider a revised concept of oversight body as part of a onephase Constitution Review to be completed in 2009

Keeping the Promise of Global Accounting Standards

In this Policy Brief, PIIE Visiting Fellow Nicolas Véron provides a comprehensive analysis of the strategic challenges facing the attempt to harmonize the world's accounting practices through the global spread of International Financial Reporting Standards (IFRS). After taking stock of the initial successes of IFRS adoption, he identifies unsustainable features in the current governance framework of the IFRS Foundation, the organization that hosts IFRS standard-setting, and advocates reform to make the IFRS Foundation accountable not only to individual governments but also to the global investor community. He also proposes a variety of incentives for individual jurisdictions to converge towards IFRS, as such convergence looks set to be more gradual than had been envisaged by the IFRS Foundation in the past.

Financial Reform after the Crisis: An Early Assessment

This working paper aims to take stock of global efforts towards financial reform since the start of the financial crisis in 2007–08 and to provide a synthetic (if simplified) picture of their status as of January 2012. Underlying dynamics are described and analyzed both at the global level (particularly G-20, International Monetary Fund, and the Financial Stability Board) and in individual jurisdictions, as well as the impact the crisis has had on these regions. The possible next steps of financial reform are then reviewed, including: the ongoing crisis management in Europe, the new emphasis on macroprudential approaches, the challenges posed by globally integrated financial firms, the implementation of harmonized global standards, and the links between financial systems and growth.banks, financial regulation, global financial crisis, global governance, international standards

What Can and Cannot Be Done about Rating Agencies

The constantly developing global financial system needs better risk assessments than Credit Rating Agencies (CRAs) have been collectively able to deliver during recent crises. More comprehensive public disclosure by issuers on their financial risks, which would not require intermediation by CRAs, is the best chance for new and better risk assessment methodologies and practices to emerge. To put it in a simplistic but concise way, what is needed is "a John Moody for the 21st century." CRAs themselves can perhaps be somewhat improved by adequate regulation and supervision, but public policy initiatives that focus only on CRAs are unlikely to adequately address the need for substantially better financial risk assessments. If real progress is to be made towards a better public understanding of financial risks, it will have to involve innovative approaches that even well-regulated CRAs, on the basis of recent experience, may not be the best placed to deliver.

An Update on EU Financial Reforms

The European Union will have to put forth significant effort to develop its own financial regulation system in the absence of strong momentum towards global standards. Nicolas Véron compares US and EU regulatory responses to the global financial crisis and then breaks down the specific areas of reform in which the European Union has acted or is expected to act. The successful creation of the European Supervisory Authorities is the main achievement so far and could lead over time to a distinct European financial regulatory philosophy.

Financing Europe's Fast Movers. Bruegel Policy Brief 2008/01, January 2008

Summary. Arguments about structural policies in Europe, including the EU’s Lisbon strategy, put a legitimate emphasis on labour and product market reforms, but often overlook the role of the financial system in fostering innovation and growth. Corporate finance is crucial for the emergence of new companies, well beyond the much-analysed technology sector. In a knowledge economy where companies rely less on physical investment, traditional bank loans are insufficient. While Europe has a world-class financial system for established companies, new instruments tailored to the needs of emerging firms remain underdeveloped in most EU countries

Too Big to Fail: The Transatlantic Debate

Although the United States and the European Union were both seriously impacted by the financial crisis of 2007, resulting policy debates and regulatory responses have differed considerably on the two sides of the Atlantic. In this paper the authors examine the debates on the problem posed by “too big to fail” financial institutions. They identify variations in historical experiences, financial system structures, and political institutions that help one understand the differences of approaches between the United States, EU member states, and the EU institutions in addressing this problem. The authors then turn to possible remedies and how they may be differentially implemented in America and Europe. They conclude on which policy developments are likely in the near future.banks, comparative political economy, financial regulation, microprudential policy, too-big-to-fail

Not All Financial Regulation Is Global

Two major shifts in the global financial regulatory landscape are likely impeding harmonization of global financial regulation: financial multipolarity, meaning the rise of emerging-market economies such as China and the impact of this trend on decision-making at the global level, and financial reregulation, or the trend toward stronger regulation of financial systems to buttress financial stability, particularly in developed economies. As a result, the ambitious objectives initially set by the G-20 leaders in the wake of the unprecedented financial crisis have so far not resulted in major international breakthroughs, warranting a reconsideration of the global financial regulatory agenda. Consistent regulatory choices across the globe are preferable, but achieving consistency involves difficult political and economic tradeoffs. Continued global capital-market integration can no longer be taken for granted. Policymakers should prioritize four key components to ensure the sustainability of financial integration: (1) strong global public institutions to provide a comprehensive analytical picture, set authoritative standards, and foster and monitor the consistency of regulatory practice; (2) globally consistent financial information; (3) new arrangements to enable and supervise globally integrated capital-market infrastructure; and (4) creating a level playing field for global capital-market intermediaries by addressing competitive distortions.

Defining Europe's Capital Markets Union. Bruegel Policy Contribution Issue 2014/12, 13 November 2014

The new European Commission has signalled that it will work to create a ‘capital markets union’. This is understood as an agenda to expand the non-bank part of Europe’s financial system, which is currently underdeveloped. The aim in the short term is to unlock credit provision as banks are deleveraging, and in the longer term, to favour a more diverse, competitive and resilient financial system. Direct regulation of individual non-bank market segments (such as securitisation, private placements or private equity) might be useful at the margin, but will not per se lead to significant capital markets development or the rebalancing of Europe’s financial system away from the current dominance by banks. To reach these goals, the capital markets union agenda must be broadened to address the framework conditions for the development of individual market segments. Six possible areas for policy initiative are, in increasing order of potential impact and political difficulty: regulation of securities and specific forms of intermediation; prudential regulation, especially of insurance companies and pension funds; regulation of accounting, auditing and financial transparency requirements that apply to companies that seek external finance; a supervisory framework for financial infrastructure firms, such as central counterparties, that supports market integration; partial harmonisation and improvement of insolvency and corporate restructuring frameworks;and partial harmonisation or convergence of tax policies that specifically affect financial investment

A Solution for Europe's Banking Problem

The European Union's aggressive response to the global financial crisis has prevented financial meltdown, but the continent's banking industry remains very fragile. Experts estimate coming losses in excess of $500 billion, with very little written down so far. These losses plus the problems in Eastern Europe portend widespread cross-border bank insolvencies. Traditional banking (in corporate finance and household savings) remains predominant in the European economies, so healing the banking system is crucial for sustained recovery in Europe. Lingering banking fragility would result in constant disruption or misallocation of bank credit and hinder returns to savers, thus depressing investment and consumption. Ongoing fragility will also harm European trend productivity growth by skipping some investment and R&D cycles, misallocating capital to lower-return projects, and wasting human capital by consigning some workers to long-term unemployment. It will take time and political will to create an EU banking supervisory architecture, but Europe cannot afford to wait. Posen and Véron recommend that Europe engage in system-wide "triage" of major banks on the continent by capital position, leading to public restructuring of the weakest ones. They propose that relevant countries jointly create a temporary supranational agency or Treuhand to implement the triage process, catalyze recapitalizations, and manage any distressed assets that would fall into public ownership. Such a trustee would avoid both harmful races to the bottom within Europe by national supervisors and fiscal transfers between European states for bailouts.