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Canada, the European Union, and Transatlantic Financial Governance

Leblond, Patrick

International Journal, March 2011, Vol.66(1), pp.57-72 [Periódico revisado por pares]

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  • Título:
    Canada, the European Union, and Transatlantic Financial Governance
  • Autor: Leblond, Patrick
  • Assuntos: History & Archaeology ; International Relations
  • É parte de: International Journal, March 2011, Vol.66(1), pp.57-72
  • Descrição: According to the [Joseph S. Nye, Jr.]'s idea of "soft power," however, the EU's success in promoting international standards that do not copy those ofthe US would depend not only on the relative size of its financial sector but also its performance. Nye defines soft power as a country's ability to attract others by the legitimacy of its policies and the values that underlie them.11 Put differently, a country would have soft power if it can clearly demonstrate that its standards, regulations, and policies "work." In terms of finance, this means that rapid economic growth, low cost of capital, financial institutions' excellent performance, and the financial system's stability should all be factors that give legitimacy to a country's policies, standards, and regulations. In light of poor American financial sector performance in the last decade, we would expect that it would have become easier for the EU to prevent US standards from becoming de jure or de facto international, and instead to promote alternative financial regulatory standards developed within the confines of international forums. Of course, this is dependent on the EU maintaining, if not improving, its own financial sector performance. The EU's response to US accounting scandals, as well as to the ones that happened on European sou, such as Ahold and Parmalat, has been much more moderate. In the wake of the Enron scandal, the European Commission was quick to set up a high-level group of company law experts in September 2001 to make recommendations for an EU regulatory framework for company law, which included corporate governance matters. Following the group's report, issued in November 2002, the European Commission adopted an action plan - "Modernizing company law and enhancing corporate governance in the European Union: A plan to move forward" - that it presented to the European Council and the European parliament. The main elements that have been implemented are: the requirement that public companies publish an annual report on their corporate governance practices, as per the national code of their home member-state (or the member-state where most of their shares are listed on a stock exchange); the creation of a European corporate governance forum, whose objective is to coordinate national corporate governance codes as well as the latter' s monitoring and enforcement; national provisions ensuring a stronger role for independent directors; and the reinforcement of shareholders' rights vis-à-vis management, especially across EU borders. In sum, the minimum corporate governance requirements at the EU level fall considerably short of those found in Canada and the US. This does not mean that the rules and regulations found in individual EU member-states cannot be stronger, as in the UK, for instance. As already mentioned, the new Basel III capital rules were adopted in November 2010, after a two-year-long evaluation and negotiation process. In addition to higher capital requirement ratios and a stricter definition of capital, the Basel III regulatory framework includes a minimum leverage ratio that banks will have to satisfy.25 As such, the reform package follows in Canada's footsteps. However, it proposes a minimum leverage ratio of three percent (instead of five in Canada's case) for tier-one capital divided by total adjusted assets. This leverage ratio takes as its starting point the US leverage ratio, whose minimum is also three percent of tier-one capital over total adjusted assets. Fortunately, unlike the US but like Canada, it includes deferred taxes and off-balance sheet exposures in the denominator's calculation. By including off-balance sheet items in its leverage ratio, the Basel committee recognizes the wisdom of Canada's more comprehensive definition of a financial group's total assets. Nevertheless, the Basel committee's minimum leverage ratio requirement is considered weaker than expected (Canada's five percent ratio was originally considered the likely standard to be adopted) and, according to the Financial Times, should therefore be "unchallenging" for banks.26 As with the Basel committee's concessions on the definition of capital, European banks are again expected to be the main beneficiaries from this softened stance, because they still have on average the highest levels of leverage.
  • Idioma: Inglês

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