Past and Future of Prudential Regulation in Europe in the Aftermath of the Global Financial Crisis

In the aftermath of the financial crisis, recent European accounting standards based upon mart-to-maket accounting were supended and financial regulatory rules and policies were harshly criticised not to have prevented the crisis by favoring prudent behaviours by financial institutions. More generally speaking, the recent evolution of International and European accounting and prudential standards displaces the traditional prudential supervision, while evergreen scandals and financial crises have called for reconsidering that principle and its implications for control, governance and regulation of financial products and institutionsin order to protect investors and other stakeholders which are concerned with them. This panel aims to develop perspectives and implications on the principle of prudence for financial information, governance and regulation, including accounting regulation, in order to acquire a better-grounded understanding and a more balanced approach to this matter.

The discussion may address the following themes:

• Given such a great impact of accounting standards not only on banking regulation, but also on the behavior of banking conglomerates, should accounting standard-setting take these effects into account in its rule-making efforts?
• The business model of banking conglomerates is so fundamentally different from business models in other industries, should banking conglomerates be subject to the same accounting standards?
• What should the cooperation between the Accounting Standards Setter and a European banking and prudential regulators look like in the future European financial architecture?
• Given the intensive national connection between financial market regulators and banking regulators, professional auditing bodies and accounting standard setters, should this collaboration be reproduced on the European level? Which role should the subsidiarity principle play? How can the European regulation benefit from the local knowledge of national banking regulators and industry bodies without being captured by (and remaining powerless facing) national special interests?

This roundtable may benefit from the expertise of practitioners in the field, such as the President of the French Accounting Standards Setting Body (Jêrome Haas) and the former chair and current Vice-Chair of the Advisory Scientific Committee of the European Systemic Risk Board, Professor Martin Hellwig.

Professor Stephany Griffith Jones, Director on Financial Regulation of the Initiative for Policy Dialogue (Columbia University) will speak on the need to have comprehensive regulation and the pitfalls one needs to overcome in order to make it possible, in particular the collection of data from financial markets. She will elaborate on the implementation of the new regulations in the derivatives market (EMIR) and in how far they address the problem of information asymmetries.

Professor Dr. Yuri Biondi will speak about the transformations of the European accounting framework and the damages involved by the adoption of a fair value accounting model especially for banking conglomerates and the financial market price formation.

Dr. Thiemann, whose PhD thesis dealt with regulatory issues related to the shadow banking system in different European countries, will provide input on the kind of collaboration between banking regulators, accounting standard setters and industry bodies he found to be effective in containing regulatory elusion in the European shadow banking sector before the crisis.