WIL EVENT REPORTS

"Creating Economic Growth" Luncheon with Brussels-based members

Posted in WIL event reports
08 February 2011 - Brussels

Financial regulations, the single market and corporate governance were the three pillars of economic growth discussed at a luncheon with WIL Brussels-based members by Sharon Bowles, Chair Committee on Economic and Monetary Affairs in the European Parliament, and Paulina Dejmek, Member of Cabinet of Commissioner for Internal Market and Services Michel Barnier.

In a convivial setting, Darcy Bradbury, Managing Director of DeShaw&Co., a US hedge fund, and Dunya Bouhacene, founding partner of Women Equity, spoke on behalf of the financial private sector, raising the awareness upon the current issues surrounding the sector.

 

An Update on Financial Regulation

Speakers agreed that regulating the financial sector is not the sole solution to revive economic growth; however, it is an essential tool to stabilize markets and make them more competitive in the long run.

Sharon Bowles considered that European legislators reacted quickly to the financial crisis. However, she called for a higher interest of EU and EU Member States’ legislators in driving financial regulation forward as it implies a vast volume of technical work and a broad dialogue between actors. Her warning towards the industry was that the legislation will keep on being updated, giving the example of audit, accounting and economic governance packages, even if legislators are aware of the need for a stable regulatory framework.

Paulina Dejmek mentioned that there are regular contacts between the EU and the responsible US authorities so as to bring into line the ongoing regulatory initiatives regarding financial markets. As to the emerging markets, notably in Asia, a shared effort is needed in order to ensure that the G20 commitments are implemented at a global level and the EU competitiveness safeguarded in the long run.

Darcy Bradbury illustrated how impulsive reactions cause panic in a financial market with unfixed boundaries. For example US investors stopped trading for some periods of time during the financial crisis waiting for clarification of the legal framework. The resulting panic shows the need for clear regulation which must involve input from all stakeholders, yet without falling into a spontaneous turmoil raised in the media.

In addition, Dunya Bouhacene stated that policy makers should support the development of socially responsible investment funds, which contribute to economic growth in a sustainable way. This should be promoted through the systematic integration of SRI criteria in the asset allocations of public institutions, which are highly aware of the impact of extra financial performance criteria in the context of long term investments.

 

The Single Market can Save the Economy

While threats are still hovering over the economy, particularly because of macroeconomic instability, strengthening the single market may help remove them.

Sharon Bowles warned that the single market should play a particularly important role in the economic governance law package, as the costs implied by the regulation of financial institutions will eat into economic growth by 0.5 to 1%. Also, stakeholders may take even more risks if the principles of the single market are not seriously treated.

In response, Darcy Bradbury stressed that hedge funds would rather act within a well regulated financial market, which implies costlier operations, than within an unstable market.

Paulina Dejmek stressed the fact that in October 2010 the Commission had launched the Single Market Act (the SMA), containing 50 different proposals to unlock the remaining potential of the internal market. The SMA is under public debate until March 2011.

 

Corporate Governance and the Way Ahead

Participants were particularly interested in knowing more about the way speakers perceived the role of corporate governance in the downturn.

In a discussion around the banking bonus system, Paulina Dejmek agreed that even if the European directive capping bankers’ bonuses entered into force on 1st January 2011, it is still the responsibility of financial institutions to set up a fair-minded reward system, which is based on a long-term strategy of capital allocation.

Sharon Bowles shared the same view, insisting that the responsibility for ensuring a fair system lied in the hands of both financial institutions and policy makers. As a solution, she promoted the idea of a more flexible and diverse working environment, which ensures that talented people move easier across departments and that women have the same opportunities as men. This approach might have more positive effects in the future than a regulatory framework.

From a slightly different angle, Dunya Bouhacene spoke about the fact that the finance world could positively contribute to enhancing women’s position in the economy. In spite of a consistent documentation of their outperformance factors, the women-led companies have been so far overlooked by the financial markets. This has resulted in a situation where investing in women-led companies has become a highly attractive opportunity for investors, with less competition and attractive valuation. In addition, the promotion of these companies and their management led to the emergence of new role models benefitting the entire society.

 

Overall, this exchange between financial stakeholders and specialists from other sectors helped broaden the single-angled and critical view upon the finance world. The sector will still hold a major role in the economic recovery, although discussions around improving its regulations and diversifying its leadership are yet in progress.

Tags: Sharon Bowles, Dunya Bouhacene, women in finance, Member of European Parliament, EU Commission, Finance expertise

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