Former Central Banker Alexandre Lamfalussy was yesterday holding court at a debate in Brussels, looking at EU financial regulation, and in particular the creation of the three new EU authorities for 'micro-prudential' supervision and their sister organisation, the new European Systemic Risk Board, for the macro-prudential side of things.
We've looked at this issue in detail before, but let's have another go.
Lamfalussy is an EU "wise man" - belonging to an exclusive group of men (they're almost always men and have usually seen too many winters) whose services are called upon when Europe is need of a game-changing policy that will solve all its problems overnight.
Lamfalussy certainly has an impressive CV. He was the chair of the Committee of Wise Men on the Regulation of European Securities Markets (which is a ridiculous name - why not go for the Fellowship of the Ring while they're at it?), having also served as first President of the European Monetary Institute, predecessor to the ECB, and Director General of the Bank for International Settlements.
It was also Lamfalussy's committee that proposed the so-called Lamfalussy process - the EU's method for deciding and implementing financial regulation (Zzzzz).
Speaking at the debate, Lamfalussy labelled the recent makeover of the EU's financial supervisory architecture a "quantum leap", saying he was particularly pleased with the fact that "the level 2 committees [in the Lamfalussy process] have become authorities now", which in plain English means that more powers have now been given to the EU. As Lamfalussy put it, the three supervisors - charged with overseeing banks, insurance and securities - are now equipped with proper "decision-making powers" (how that is legal under the EU treaties is open to debate, but that's for another time).
He wasn't as happy about the limited mandate of the European Systemic Risk Board, which has more of an advisory role at the moment. He said that "it should get decision-making powers as soon as possible" since "the absence of a macro-prudential supervision component [which is meant to be the ESRB's area] did play a major role in the crisis."
Warming to his subject, he then went on to argue that "the problem with the people now in charge [i.e. the three EU supervisors] is that they haven't been trained or mandated" for their task, adding that "the three should instead have direct and frequent access to the bankers." In other words, the supervisors need to get closer to the people/level that they are meant to be regulating.
Right, so let's recap. Mr Lamfalussy says that 1) financial supervisors failed to spot/address the crisis and 2) the people working for the EU's new financial supervisors aren't trained properly and 3) we need to regulate closer to the ground but 4) we need to concentrate more supervisory powers at the hands of EU regulators - micro as well as macro - at the expense of experienced national authorities which, naturally, are closer to the ground.
Hmmm, something doesn't seem to add up here. Indeed, as someone once noted, "the problem with wise men is that there aren't enough of them." They tend to have an inherent bias towards whatever option they're commissioned to write about, with no one there to take a contrary view.
Judging from Lamfalussy's comments - which of course should be seen in light of his entire speech - it's not entirely clear to us whether he's making the argument for more EU supervisory powers -or less, i.e. devolving powers to a level closer to the firms that are being regulated and where the expertise also lies.
In addition, it remains unclear to us why EU supervisors would do a better job spotting bubbles and systemic risks than their national counterparts (an issue which we look at here).
Having said that, we do see potential in the European Banking Authority (on stress tests, cross-border banking wind-downs and solving host-home country conflicts) and the ESRB (to serve as a forum for exchanging information on systemic risk and keep up with new developments, such as the rise of "shadow banking" for example.)
But surely, an EU wise man must be able to put up a stronger case than this?