Press Release - Taking the financial sector reform agenda forward
13.09.2012, 08:30 (CET)
Issues related to the reform of the financial sector, such as the creation of a banking union and especially the establishment of a Single Supervisory Mechanism, as well as shadow banking, will be at the core of discussions as the EU’s Economy and Finance Ministers and Central Bank Governors meet in Cyprus. The Informal meeting of the ECOFIN Council takes place on September 14 and 15 at the ‘Filoxenia’ Conference Centre in Lefkosia (Nicosia).

On Saturday, ministers and governors will discuss the appropriate follow-up to the June European Council on the banking union in general and more specifically on the establishment of an effective Single Supervisory Mechanism.

Breaking the negative cycle

At the euro area summit in June 2012, Heads of State or Governments agreed that the European Commission should present a proposal for the establishment of a Single Supervisory Mechanism. As a response, the European Commission outlined its proposals for a banking union on September 12.

The creation of a Single Supervisory Mechanism will be the first step in breaking the negative feedback loop between the banks and the sovereign debt and will ultimately help to promote stability in the euro area and the wider European economy. As part of the June euro area Summit agreement, the establishment of a Single Supervisory Mechanism will also be a precondition for the European Stability Mechanism to be able to directly recapitalise banks.

Cyprus’ Minister of Finance, Vassos Shiarly, says:

The Cyprus Presidency considers the decision on the establishment of a banking union and especially a Single Supervisory Mechanism, as a very important one and a major step towards the deepening of the European Union. At the same time, we acknowledge the fact that for such a task to be properly implemented, a series of factors must be taken into account and intensive discussions need to take place. At the Informal ECOFIN here in Cyprus, finance ministers and governors will have their first opportunity to discuss the Commission´s recently published relevant proposals. ”

During the same day, Ministers and Governors will also have the opportunity to provide input on how to take forward the issue of Shadow Banking, especially regarding regulation issues.

Strengthening the shadow banking sector

Non-bank credit intermediation, or shadow banking, is an important additional source of market liquidity and funding for investors. It offers an alternative to traditional bank deposits and is often seen as important in providing extra liquidity to the market at a time when banks are deleveraging. Currently, the shadow banking sector is subject to lower levels of regulation than traditional banking, which lead to instability. As a result, it is generally acknowledged that regulation and supervision of shadow banking needs to be strengthened.

“Although the shadow banking sector plays a key role in providing additional market liquidity, it is subject to lower levels of regulation than the traditional banking sector and might cause systemic risk. How to strengthen regulation in this area will be one of the issues discussed during our meetings at the Informal ECOFIN,” Mr. Shiarly added.

Fulfilling EU commitments related to IMF reforms

On Friday, the first day of the meeting, ministers and governors are expected to discuss the issue of IMF Executive Board representation, as a follow up to the IMF quota and governance reforms that took place in 2010.

As part of the IMF reforms during 2010, advanced European countries committed to reduce their combined representation in the IMF Executive Board by two chairs, at the latest by the time of the first regular election after the 2010 quota reform takes effect. After a round of discussions and a number of actions, the advanced European countries` representation in the IMF Executive Board was reduced by 1.64 chairs. The missing ⅓ seat is a key issue, and currently the EU is working on various options to achieve this objective.

According to Mr. Shiarly, “the EU has taken specific commitments during the IMF reforms in 2010 and we have to fully respect them. I am looking forward to a discussion on how to best fulfill those commitments and what timeframe should be followed.”

Presidency Spokesperson in Cyprus
Costas Yennaris

Mobile: +357 99400234
Minister´s Communications Officer
George Sklavos

Ministry of Finance

Telephone: +357 22601268
Communications Officer
Panikos Constantinou

Ministry of Finance
Economic Governance
Telephone: +357 22601266


14.09.2012 - 15.09.2012