EC Statement: Stricter financial regulation can help contain future asset bubbles and reduce macroeconomic imbalances
( December 14, 2010, 11:16 GMT | Official Statement) -- MLex Summary: Monetary policy is not enough to prevent bubbles in housing and other assets, so tighter banking regulation is a necessary part of economic oversight, the European Commission said in a quarterly report on the euro area. Mergers and other integration of the financial sector has slowed due to the financial crisis, according to the report, which also said companies may be becoming less reliant on bank loans for financing.As part of the effort to broaden macroeconomic surveillance, this Quarterly Report on the Euro Area investigates the extent to which financial supervisory and regulatory reform can help avoid future harmful credit and asset price booms, for instance in housing markets. Stricter financial supervision can help directly reduce risks to financial stability by keeping banks' leverage in check and by establishing more stringent lending standards. Further topics in this issue highlight the effect the crisis has had on cross-border banking integration in the euro area. Furthermore, the sovereign debt crisis of 2010 is shown to complicate the ongoing process of balance sheet repair. Finally, the freezing of interbank markets in 2008 has caused non-financial corporations to switch to greater bond issuance, thereby diversifying away from their traditional bank-based funding....
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