EU Financial Supervision Plans May Be Replicated Globally

By | March 10, 2009

European Union plans to beef up financial supervision may be replicated globally, though much will hinge on how the United States responds, a top official from the bloc’s executive arm said on Monday.

A high-level committee headed by a former Bank of France governor, Jacques de Larosiere, last month recommended setting up two new pan-EU bodies to plug supervisory gaps highlighted by the market crisis.

The G20 group of nations is discussing a global approach to financial market reforms, including supervision, and meets in April in London.

A top official from the European Commission, which will be key in drafting EU law to introduce the new bodies, said reaction had been largely positive so far, particularly from the big member states home to major cross-border banks and insurers.

“I have not heard biting widespread criticism but rather positive comments … privately from a number of member states,” said David Wright, deputy director general of the Commission’s internal market unit.

“It’s quite possible, likely that the type of ideas the committee put forward on macro prudential supervision and strengthening micro prudential supervision is going to be replicated at the global level and indeed in the United States,” Wright said.

“It looks like Europe has the first ideas on the table. I think it’s a path breaker,” he told think-tank CEPS.

The committee deliberately avoided coming up with a plan for a single EU supervisor, saying it would simply gather dust as too few member states would accept it.

The Commission will publish a European supervisory package in May for EU leaders to endorse in June, with detailed draft legislation to follow later for adoption by EU governments and the European Parliament.

Finance ministers from the 16 nations using the single currency gave a preliminary green light to de Larosiere’s recommendations on Monday.

“The de Larosiere report will serve as a good basis … there is a fairly wide measure of consensus on the policies de Larosiere put forward. We have agreed on the timeframe,” Jean-Claude Juncker, president of the Eurogroup, told a news conference.

EU, U.S. KEY TO G20 SUCCESS
The de Larosiere committee recommended creating a new European Systemic Risk Council hosted by the European Central Bank to monitor risk in the system.

CEPS chief executive Karel Lannoo said a systemic risk council looked more like a small parliament than a decision-making body but Wright dismissed the criticisms.

“It’s not a tea party but it will have to evaluate risk, analyze and produce warnings, and those warnings have to be acted on,” Wright said, adding that it should also interface with global bodies such as the International Monetary Fund.

The second body would group national market, insurance and banking watchdogs into three new overarching pan-EU authorities with binding mediation between national supervisors.

The G20 is expected to adopt high-level principles for reforming financial markets. Wright said real action would depend on the EU and United States being committed as they make up 70 to 80 percent of global capital markets. “Otherwise you have to argue you need global institutions and that is a long, long way away,” he added.

(Editing by Victoria Main/Dale Hudson)

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