Report cites need for eurozone central regulator
An Organisation for Economic Cooperation and Development (OECD) report published Wednesday (14 January) cites the need for centralisation of financial regulation in the euro area.
In a televised interview, senior OECD economist and head of the EU desk, Nigel Pain, said one way to achieve this aim "is to have an agency which oversees the work of the existing national supervisors."
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"A second way would be to set up a central agency with responsibility for actually supervising the large [financial] institutions directly", Mr Pain continued, referring to the increased number of cross-border institutions that have sprung up in recent years.
Financial regulation in the European Union is predominantly carried out at the national level at present but analysts point to the borderless nature of international finance as a reason for supranational regulation.
"The existing system relies heavily on close co-ordination and information sharing between different regulators. It also imposes a considerable burden on cross-border firms that have to report to an array of different authorities", says the OECD report.
"A more centralised and uniform system for supervising large complex financial institutions would also have advantages by pooling information, regulating in a consistent way, enhancing preparedness for a crisis and reducing regulatory costs", the report continues.
European Central Bank (ECB) chief Jean-Claude Trichet said last week the bank was examining the possibility of an increased role in this area.
The existence of large member states such as Poland and the UK outside the eurozone may limit the ECB's options however.
In the interview, Mr Pain also said short-term measures were necessary to prevent future financial crises, including increased transparency of financial accounts and a reassessment of the role played by credit rating agencies.
The European Parliament is currently looking at measures regarding credit rating agencies put forward by Internal Market Commissioner, Charlie McCreevy.
Calls for further rate cut
The OECD report says growth will not move above trend rates until the second half of 2010, and is predicting that the fiscal deficit for the euro area in 2009 will increase by 0.8 per cent.
Ageing and healthcare costs were cited as the major obstacles to long-term fiscal sustainability.
Regarding interest rates, Mr Pain said: "The ECB has to stand ready to ease monetary policy as inflation falls and we think they have plenty of scope to do so."
Such calls are likely to increase pressure on the ECB board to cut interest rates when it meets Thursday (15 January).
However, Mr Pain said the ECB should be ready to increase rates if inflationary risks increase.