SocGen debacle shows flaws in EU bank supervision

By Huw Jones and David Milliken

BRUSSELS/FRANKFURT (Reuters) - Market watchdogs' handling of Societe Generale's rogue trades has again highlighted Europe's fragmented supervisory system and should inject more momentum into reforms already underway.

The closing of the unauthorized positions on January 21 triggered a loss of nearly 5 billion euros ($7.4 billion) for SocGen, leaving dealers wondering if it contributed to the biggest one-day fall on European stock markets since the 9/11 attacks on the United States in 2001.

On January 22 the Federal Reserve, unaware of SocGen's problems, cut interest rates by 75 basis points, its biggest cut in over two decades, a step taken to help soothe share markets.

The French central bank told the Fed about SocGen's problems the following day. SocGen issued a public statement on January 24.

Despite the size of the rogue trade and the inevitable attention it would garner, market regulators elsewhere in Europe were generally not informed ahead of the public announcement.

"Even the Federal Reserve was not informed so why would we be informed," Eddy Wymeersch, chairman of the Committee of European Securities Regulators (CESR), told Reuters.

CESR groups all the EU's 27 national securities regulators and its role is to improve cooperation among watchdogs.

"This is first and foremost a national question and things should be put in order at the national level. It's not the market that has failed, it's the bank that has failed," Wymeersch said.