The ‘shadow banking sector’ must be regulated, says Romania’s ex-Finance Minister and currently a MEP, economist Daniel Daianu who presented last weekend the survey called "Why is this financial crisis occurring. How to respond to it?," about the current financial crisis and the way to overcome it.
"The shadow banking sector must be regulated because there are voices saying that it is in this banking sector that the current international crisis originates. (…). They talk a lot but fail paying much attention to the system’s risks," Daianu said.
The shadow banking sector mainly developed through financial innovations, many of them very risky, is very poorly regulated, and therefore new regulations are required, Daianu stressed. In this context Romania’s ex-FinMin said that the economy and finance ministers of the EU countries must have in view such regulations, because "EU is not spared the risk of the crises generated by that in the United Sates.
The ex-FinMin’s proposals for preventing the international financial crises have in view a thorough regulation of the financial markets, including covering the areas scoring regulation deficit, the adoption of firmer economic policies as well as the improvement of the risk management. Daianu thinks that business ethics accompanied by transparency and responsibility might also contribute to facing these crises.
To respond to the crisis, we first have to pay attention to the signals and warnings the previous crises send, because "many recommendations have been made over the latest years, but scanty decisive measures were taken," the Romanian MEP believes.
Likewise a distinction must be made between the open and the regulated market.
There is big confusion between the free markets and the regulation ones. A free market is not a regulation market. As a matter of fact we are currently witnessing a failure of the regulation markets, Daianu pointed out.
According to him, the crises are caused by macroeconomic inbalances and are rooted in the structural ones and we can find the roots of the current crisis both at the macro and the micro level at a thorough analysis can reveal both cyclical and structural causes such as a dramatic growth of part the capital markets play in brokerage, an ever more use of the financial instruments that took the risks cross the national borders, but also diminished the transparency, the increase in the financial markets’ opacity, grew the system risks, the globalization pressure and the development of the cross border operations, inappropriate quantitative methods, an excess in savings in many countries, in China especially.
At the same time, both the antecedents and the course of the current crisis in the United States show that the financial industry cannot rely on self-regulation and the liquidity injection will fuse the crisis but will not solve it, Daniel Daianu says.
The current financial crisis is the effect of the massive cross border capital inflow and of a wider use of financial instruments such as the bonds securing, which are neither transparent nor transacted in the market, Daianu explained, adding that many banks launched more and more complex financial products on the market, wanting to increase their profits, but they failed controlling the risks.
Daianu also warned about the credit rating agencies with major interest conflicts.
In the end of his study Daniel Daianu pleaded for the fight against the structural causes of the current crisis namely the major lack of regulations in the shadow baking sector, the markets’ opacity, the lack of coordination between the surveillance authorities.
MEP Daniel Daianu and Laurian Lungu of Cardiff Business School presented on May 9, during a seminar of the European Parliament this survey on the current financial crisis and the way to face and overcome it, and which is an analysis of the international financial crisis.