Following the adoption of the single currency, the Financial Services Action Plan (FSAP) represented the next major stage in the integration process. Now that the FSAP is nearing completion, I see the post-FSAP period as a "window of opportunity" for further enhancing financial integration. At the same time, I am convinced that further progress is inextricably linked to the improvement of the regulatory and supervisory framework and the financial stability arrangements. In particular, institutional BIS Review 18/2005 arrangements must respond to the need for greater cross-border cooperation, with a view to both supporting further integration and at the same time preserving financial stability.
In the area of financial regulation and supervision, a key objective is to achieve a high degree of regulatory and supervisory convergence across countries. This will help reduce the compliance burden on financial institutions, thus addressing one of the largest remaining obstacles to enhanced cross-border activities. At the same time, well developed arrangements for the exchange of information and the cooperation among supervisory authorities have become a prerequisite for the effective supervision of cross-border entities.
In the area of financial stability, arrangements for financial stability monitoring and crisis management need to be tailored to the fact that liquidity and solvency problems at financial institutions are increasingly likely to affect more than one country. The institutional framework for banks is especially important. Given its pivotal role in channelling funds into the EU economy, a well integrated banking sector is a prerequisite for achieving a truly single financial market. In recent years, we have witnessed an increase in cross-border banking.
The considerable competitive pressures in the global markets and the increasing saturation of domestic markets should normally spur further cross-border banking. Policy-makers have already launched important initiatives to step up cross-border cooperation in line with the growth of cross-border banking. While some challenges for the coming period certainly remain, impressive progress has already been made.
In the area of financial regulation and supervision, the extension of the Lamfalussy approach to the banking sector and the establishment of the Committee of European Banking Supervisors (CEBS) are such milestones. Here, I would like to emphasise the crucial work performed by the CEBS, which develops common benchmarks and best practices for the consistent implementation of EU Banking Directives as well as agreed principles for cooperation between home and host supervisors. In addition, the forthcoming revision of the Codified Banking Directive will provide a robust underpinning for greater cross-border cooperation among authorities, especially for large banking groups. The revised Directive will tighten the requirements for the information exchange and coordination between the consolidating supervisor and host supervisors. It will also assign the consolidating supervisor a coordinating role in the gathering and dissemination of information about the group as well as the planning and coordination of supervisory activities. Following these two major reforms, efforts should now focus on their effective implementation.
As regards financial stability, there has been a significant increase in cross-border arrangements in response to the recommendations of the reports by the Economic and Financial Committee (EFC) on financial stability and crisis management. The important role of the Financial Services Committee (FSC), which was responsible for monitoring the implementation of the EFC recommendations, should be fully acknowledged at this point.
With regard to crisis management, the 2003 Memorandum of Understanding between EU banking supervisors and central banks, and to which the new EU Member States adhered in June 2004, was a great accomplishment. For the first time, principles for managing financial crises that may have a cross-border impact were agreed at EU level. Nevertheless, the Memorandum may be not sufficiently detailed to cover large cross-border banking groups comprising several authorities, where crisis management is particularly complex. Given the potential far-reaching implications of financial disturbances involving such groups, the development of group-specific agreements could be an important avenue to explore. Another important issue is the involvement of finance ministries in the crisis management framework.
A High-Level Working Group, comprising representatives from the ministries of finance, central banks and banking supervisors, is working on concrete proposals for cooperation arrangements between the three authorities at EU level. As regards financial stability monitoring, the EU framework has been enhanced considerably in recent years. In this context, I would like to highlight the stability assessment of the EU banking sector, performed by the ESCB's Banking Supervision Committee, and the comprehensive analysis of potential vulnerabilities in the euro area financial system as a whole, which was carried out as part of the ECB's Financial Stability Review. In addition, the CEBS is expected to improve its internal exchange of information on individual institutions and groups.