Something to think about:http://www.ft.com/cms/s/0/e27636d2-5f32 ... 07658.html
City warns against EU crackdown
By Nikki Tait in Brussels
Published: July 31 2008 20:32 | Last updated: July 31 2008 20:32
European Commission efforts to strengthen the regulation of financial services in the wake of the credit crunch risk exacerbating the sector’s downturn and adding to the tens of thousands of job losses already forecast, the City of London will warn on Friday.
“Proposed changes could greatly increase the cost of capital across Europe with detrimental effects far beyond the financial services industry,” said Stuart Fraser, chairman of policy and resources at the City of London, which will on Friday publish its gloomy forecasts.
His comments are targeted, in particular, at amendments to the European Union’s capital requirements directive. These are due to be formally presented by the Commission in the autumn as part of its broader response to the crisis in the financial markets.
Draft proposals have already been circulated in Brussels, and one possible measure could involve tightening the “originate-to-distribute” model used by banks to devise then off-load securitised products that have been at the heart of the recent crisis. Brussels has suggested that originators should retain capital for at least 10 per cent of the exposures they securitise. This idea has, however, already been attacked by banking organisations.
Mr Fraser cited the proposal as the type of regulation that the City believed could seriously hamper the financial sector’s prospects.
“The message we’re trying to get across is that it’s a very difficult environment for financial services. What we don’t need is regulation that will exacerbate the downturn. The 10 per cent holding rule is exactly what we don’t need,” he said.
Intervention by the City – home to the UK’s largest financial services sector – brought an equally forceful response from Brussels. “If the industry wants to avoid a materially tighter regulatory environment, they must come forward with more robust and meaningful proposals to clean up their act,” said a Commission official.
“When the financial sector is in such a state that losses risk being socialised while profits from risk-taking are privatised, nobody should be surprised if, in the absence of meaningful and comprehensive industry response, there is a regulatory response to address the misaligned incentives that are at the heart of the problems that have arisen.”
Investor confidence would not be restored by a race to the bottom, said the official.
The City is preparing to publish its annual report on wholesale financial services and their role in the EU economy. It is expected to predict the sector’s contribution to the EU economy by 2009 will have fallen by 8.3 per cent from the €225bn ($350bn, £177bn) of last year.
About 75,000 jobs could also be lost in the sector, which last year employed a record 1.4m people in the 27 EU member states.