Doc. 10618

28 June 2005

The potential risks to world financial stability by the rise of hedge funds and certain other new financial instruments

Motion for a resolution

presented by Mr Reimann and others

1.       An increasingly complex and broad range of financial instruments have been created in response to globalization and now encompass a considerable share of international capital. They include hedge funds and an array of derivatives such as swaps, options and collateralized debt obligations, often combined in non-transparent packages and involving increasing proportions of junk bonds.

2.       Such financial instruments may permit investors to diversify risk and more generally make the world economy more flexible, responsive and efficient. However, they are also a source of concern, since they are poorly understood in terms of their inherent risks and their accumulated impact on the stability of the international financial system in times of crisis, to which comes that they are largely outside any supervision or regulation, whether at national or international level. This situation is particularly preoccupying in a world of rising imbalances - as illustrated for example by currency exchange strains, the major US current account deficit and the increasing economic divergence in economic growth between world regions.

3.       The Assembly calls on international organizations such as the OECD and the International Monetary Fund to devote more research into this area and on Council of Europe member states and other countries possibly to initiate common action on the basis of the conclusions reached. It is vital for the world to avoid another major crisis in financial markets such as the one nearly caused in 1998 by the collapse of the hedge fund Long Term Capital Management, requiring major emergency support via public funding.

Signed (see overleaf)

Signed ¹:

REIMANN, Maximilian, Switzerland, ALDE

FENECHIU, Relu, Romania, ALDE

FRIÐLEIFSDÓTTIR, Siv, Iceland, ALDE

GLESENER, Marcel, Luxembourg, EPP/CD

MAISSEN, Theo, Switzerland, EPP/CD

MARGELOV, Mikhail, Russia, EDG

NEGELE, Gebhard, Liechtenstein, NR

OHLSSON, Carina, Sweden, SOC

RANDEGGER, Johannes, Switzerland, ALDE

RIESTER, Walter, Germany, SOC

RUSSELL-JOHNSTON, United Kingdom, ALDE

SCHMIED, Walter, Switzerland, ALDE

STAMM, Luzi, Switzerland, ALDE

VOSGANIAN, Varujan, Romania, ALDE

ZAPFL-HELBLING, Rosmarie, Switzerland, EPP/CD

¹        SOC: Socialist Group

      EPP/CD: Group of the European People’s Party

      ALDE: Alliance of Liberals and Democrats for Europe

      EDG: European Democratic Group

      UEL: Group of the Unified European Left

      NR: not registered in a group