The European Commission has published its first review of the financial regulation agenda as a whole. The review sets out how the financial regulatory reforms that have been put in place will deliver a safer and more responsible financial system.
The review includes a Commission Communication entitled “A reformed financial sector for Europe” accompanied by a detailed economic review explaining how the reforms reshape the financial sector and the resulting benefits. The Communication recalls the objectives that guided the Commission, presents an overview of the reforms it proposed, and takes stock of the key effects that can already be observed.
The main conclusions of the economic review include:
- the EU financial regulation agenda effectively addresses the regulatory shortcomings and market failures that contributed to the crisis;
- the total benefits of the financial regulation agenda are expected to significantly outweigh the costs;
- the reforms impose costs, but many of these are private costs to financial intermediaries that arise in the transition to a more stable financial system and are offset by societal benefits; and
- while the reforms address the problems revealed by the recent crisis, the risk of future crises cannot be regulated away.
The Commission notes that there are areas of concern where the reforms may have unintended consequences if left unaddressed. These include, for example, a concentration of risks at the level of central counterparties and the risk of increases in the cost of financial intermediation.
The Commission also notes that the reform process is not yet fully accomplished. Some important reforms still need to be adopted by the co-legislators, in particular on bank structural reform, shadow banking and financial benchmarks. Furthermore, work is still on-going at both the international and European level on a resolution framework for non-banks.