Tuesday, April 11, 2006

Europe simulates financial meltdown - Yahoo! News

Europe simulates financial meltdown - Yahoo! News:

"Europe's financial regulators have held a 'war game' exercise, simulating a continent-wide financial crisis, amid fears they are ill- prepared to stop a problem in one country spreading across borders.

The exercise involved simulating the collapse of a big bank with operations in several large countries to see whether the European Central Bank, national central banks and finance ministries could work toget- her to contain the crisis.

It is understood the exercise took place at the headquarters of the ECB in Frankfurt at the end of last week. One person involved said: 'It is like checking whether a nuclear power plant can survive a plane crashing into it.'

The exercise took place on the eve of a meeting of
European Union finance ministers and central bank chiefs in Vienna, at which the bloc's financial stability was high on the agenda. Officials at the meeting confirmed that ministers had discussed the ECB crisis management exercise.

The aim was to test the ability of national regulators to share information with other national bodies in a crisis and to overcome 'differences in culture' and other practical obstacles. The results are being analysed and will be reported to the Ecofin council in June.

Europe's vulnerability to a cross-border financial crisis was revealed in a confidential report prepared by officials for the Ecofin council. Regulators are particularly worried about the risks to financial stability posed by the growth in hedge funds and credit derivatives.

It said that 'progress has been insufficient in most of the member states' in putting in place national structures for crisis management, and urged national regulators to stage their own crisis simulation exercises."

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