CIAO DATE: 07/2011
May 2011
Europe's financial sector plays a crucial role as a catalyst for broader economic development. Through its intermediation role, it mobilises savings for productive investment. It lowers transaction costs in the European economy by helping to reduce problems of asymmetric information that are inherent in the relationships between investors and entrepreneurs. It provides payment services in member states and cross border between member states and internationally. It provides the means for companies and consumers to hedge, pool, share, and price risks. An efficient financial sector can therefore reduce the cost and risk of producing and trading goods and services, thereby making an important contribution to raising standards of living. But the recent crisis has revealed fundamental weaknesses in the financial system, forcing a paradigm shift in the global financial regulatory framework. There is now a broad consensus that the period leading up to the crisis was characterised by excessive credit growth and the build up of systemic imbalances, developments that were facilitated by inadequate oversight of risk management on the part of firms and supervisors. Reforms are therefore required to make the financial system more resilient to future shocks and to protect consumer welfare in Europe and around the world.
Resource link: Balancing growth and stability in EU financial reform [PDF] - 666K