Leaders from the European Union (EU) member states were poised to endorse measures Friday to restore stability in the financial markets.
"The current turmoil has highlighted the need for further strengthening of the financial stability framework, through enhanced prudential supervision and improved tools for financial crisis management," EU leaders were expected to say, according to a draft conclusion prepared by the Slovenia presidency.
EU leaders kicked off their spring summit Thursday as difficulties in the international financial sector continue to their way through the system.
Six months after European financial markets were threatened by the U.S. sub-prime mortgage market crisis, EU leaders have been tasked to find a way out of the persistent turbulence, which has become a major downside risk to the economy of the 27-nation bloc.
European financial markets have come under tremendous pressure in the credit squeeze caused by the U.S. sub-prime mortgage crisis, as financial institutions have been reluctant to lend for fear of being sucked into the turmoil that began last summer.
Nobody knows how big the losses will be. The continuous uncertainty has undermined trust and confidence among investors and consumers, clouding the economic outlook of the EU.
In a bid to restore confidence in the markets, EU leaders called on financial institutions to promptly and fully disclose their exposures to the financial strife.
"Prompt and full disclosure of exposures to distressed assets and off-balance-sheet vehicles and/or losses by banks and other financial institutions is essential," the draft conclusion said.
EU leaders were expected to say that while primary responsibility is with the private sector, authorities in the EU stand ready to take regulatory and supervisory action where necessary.
In this regard, they will call for the enhancement of transparency of investors, markets and regulators, improving valuation standards, reinforcing the prudential framework and risk management in the financial sector and improving market functioning and incentive structures, including the role of credit-rating agencies.
EU leaders will warn that if market participants do not rapidly address these issues, the EU will consider regulatory alternatives.
They will also decide to improve financial supervision and enhance the management of cross-border financial crisis situations, tools and procedures.
However, the EU said it cannot resolve all of the problems in the financial markets on its own, but needs to act in tandem with other international partners to build a safer and more transparent international environment for investors.
"On financial markets' stability issues, the EU should work in close cooperation with its international partners in the relevant for a," the draft conclusion said.
In particular, EU leaders will say early warning systems at the EU and international level should be enhanced, including by strengthening the role of the International Monetary Fund (IMF) in oversight of macro-financial stability.
Source: Xinhua
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