07 February 2008

Speech McCreevy: Crisis or no crisis – Lessons for financial markets and regulators

Speaking at Chatham House, London, Commissioner McCreevy acknowledged that the speed and severity of the turmoil that has swept through the financial markets since last summer have taken both market participants and regulators by surprise. “The financial turmoil has prompted a reality check of the financial system, both globally and for Europe”, McCreevy said.

The increasing complexity of financial markets led to the effect that even regulators have struggled. “Regulators being too far behind the "knowledge curve" is not satisfactory – and must not happen in the future”, McCreevy said.

McCreevy pointed to a number of weaknesses in the private sector, namely with regard to risk management standards, disclosure standards and the failing standards related to the credit commitments of certain European banks towards Special Purpose Vehicles.

On credit rating agencies the Commissioner reminded that market participants need to remember what credit ratings are, noting that CRAs have no responsibility to validate data provided to them on asset pools and no legal duty of care or legal liability to those who use the ratings.

“I do not think credit rating agencies can expect to emerge from this crisis without significant changes to the way they operate”, he said.

However, “The scope for direct action [of European policy makers] to resolve the current crisis is limited”. He noted. “I believe the role of policy makers and regulators needs to be long term and forward looking”, McCreevy said, pointing to the main areas of work within ECOFIN.

“The Wild West of financial exuberance until the music stopped is over”, he concluded.

Full speech

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