Crisis mismanagement

29 January 2008 By William Echikson

The news of SocGen s problems didn t get to Washington on time. That failure of communications is typical of a Balkanised regulatory system. As European banks become more international, national supervision seems subscale. A stronger system could prevent a worse crisis.

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Leaders of the four biggest EU economies and the European Commission president are meeting in London on Tuesday to discuss how to respondent to current financial market crises.

UK Prime Minister Gordon Brown, French President Nicolas Sarkozy, German Chancellor Angela Merkel, Italian Prime Minister Romano Prodi and Commission President Jose Manuel Barroso will discuss ideas for an earlywarning system to warn about potential crossborder banking risks. UK Prime Minister Brown envisions the International Monetary Fund taking on this earlywarning role.

Within Europe, calls are mounting to overhaul the present system of national regulators in 27 countries overseeing locally headquartered banks. EU Internal Markets Commissioner Charlie McCreevy is proposing setting up a team of supervisors for each crossborder banking group. Italian Finance Minister Tommaso PadoaSchioppa wants a common EU standard for supervising financial institutions and an EUwide regulatory agency.

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