EUROPEAN UNION leaders approved the creation of a regional system of financial supervisors yesterday, but the proposals were less far-reaching than US plans to help combat any new global credit crisis.
The agreement on the overhaul of financial oversight followed US president Barack Obama’s announcement on Wednesday of what he said was the biggest reform of US supervision since the 1930s.
“Nine months ago, if I had said we would agree on a system of pan-EU supervision with binding powers not one of you would have believed me,” French president Nicolas Sarkozy said, though he acknowledged the revamp was not as ambitious as he had wanted.
But experts said the EU’s regulations to guard against a repeat of the crisis paled in comparison to Washington’s bolder moves to give the state powers to intervene.
“It is not the revolution you might expect after such a crisis,” said Daniel Gros, director of the Centre for European Policy Studies, a Brussels think tank.
A deal was reached only after late-night talks between Britain, Germany and France addressed concerns in London and elsewhere that the new pan-EU bodies could undermine the powers of national regulators.
The financial supervisory proposals involve creating three pan-European regulatory bodies next year to ensure countries introduce new rules on supervision, and a new European Systemic Risk Board that would monitor risks to financial stability.
Reacting to British concerns, a summit statement said any decisions taken by the new bodies “should not impinge in any way on the fiscal responsibilities of member states” – for example, by forcing a costly bank bailout.
“I have ensured that British taxpayers will be properly protected,” UK prime minister Gordon Brown said afterwards.
Britain also resisted a plan for the European Central Bank – which sets interest rates in the euro zone – to permanently chair the new EU systemic risk body.
Leaders instead agreed the ECB’s General Council board, made up of 11 non-euro states such as Britain, would elect the chair, a compromise Mr Sarkozy said would still leave the ECB in charge.
The EU has been under pressure to take action following public criticism of its handling of the crisis and a record-low turnout in a European parliament election this month which highlighted voter discontent.
The bloc is already working on new rules including tougher regulations on bank capital, due to take effect in 2010, and tighter monitoring of hedge funds and private equity groups, and has issued guidelines on bankers’ pay.
Lobby groups were relieved a bitter, drawn-out spat has been avoided for now, particularly as Britain is also trying to water down separate EU plans to regulate hedge funds. “We welcome the agreement and the fact we can move on and try to get this system in place,” said Patrik Karlsson, a director at the British Bankers Association.
Officials said the two key compromises agreed with Britain still left the overall reform largely intact with the ECB keeping a central, enhanced role and leaving the bulk of EU financial rules still subject to binding decisions.
Under the EU proposals, a new European Systemic Risk Board will be set up, hosted by the European Central Bank to issue non-binding warnings about risks. Britain and national banking and insurance regulators in the EU oppose the ECB chairing the new board, saying this would give it too much sway. The Brussels summit agreed to soften this by having the chair elected by the ECB’s Governing Council.
Three new pan-EU supervisory authorities would have binding powers to bring in line a member state that strays from the bloc’s insurance, securities and bank rules.
