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| EU Proposes Financial Agencies to Oversee Banks, Risk |
| Brussel, 27.05.2009 |
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| By John Rega
May 27 (Bloomberg) -- The European Union proposed its biggest overhaul of financial oversight in response to almost $1.5 trillion of losses and writedowns at banks and insurers worldwide.
The European Commission in Brussels is seeking to create the first EU financial agencies with rule-making powers, as sought by some lenders including Deutsche Bank AG. The new authorities would oversee credit-rating companies including Standard & Poor’s and Moody’s Investors Service as well.
The plan also tasks European Central Bank President Jean- Claude Trichet with leading the first EU-wide panel to monitor risks in the broader economy. The policy makers blame gaps in oversight for failing to stop the global financial crisis, which forced EU governments to bolster banks with 2.8 trillion euros ($3.9 trillion) of capital and guarantees.
The plan “will provide for a macro perspective in supervision, which is urgently required,” said Piet Moerland, executive board member of Dutch lender Rabobank Nederland NV and president of the European Association of Co-operative Banks.
Other financial industry groups also largely supported the plan, in statements today, for its potential to create more consistent rules, improve cooperation among regulators and boost confidence in markets.
Seeking Approval
Aiming to get the overhaul in force next year, the commission will seek backing for the plan from EU leaders at a summit next month and in a public consultation open until July 15. Formal legislation would come in the second half of the year, and need approval from the EU’s 27 governments and the European Parliament.
If implemented, the system would be reviewed after three years to see if further-reaching changes are needed.
The plan builds on existing committees of national regulators for banking, insurance and securities. Those panels provide advice on drafting and interpreting rules, without power to impose their own regulations or force national authorities to comply.
The proposed European System of Financial Supervisors goes further by giving central agencies the power to make binding decisions in the case of disputes between authorities who oversee multinational banks such as Barclays Plc or Banco Santander SA.
Day-to-day supervision is best done closest to the market and remains the responsibility of national regulators, commission President Jose Barroso said to reporters.
“This is not, I insist, a centralization of power,” Barroso said.
U.K.-Iceland Dispute
Having a mediator would have helped in the case of the U.K.’s disagreement with Iceland over the collapsed Icelandic banks Landsbanki Islands hf and Kaupthing Bank hf, said Charlie McCreevy, the financial services commissioner, in presenting the plan at a news conference with Barroso.
The idea may draw resistance from the British government, which argues it must have the ultimate power over national decisions for which it bears responsibility -- including bailing out banks such as Royal Bank of Scotland Group Plc and Northern Rock Plc.
“The commission’s proposals represent a starting point for further discussions,” a U.K. Treasury spokesman said by e-mail. “Any reforms we make within the EU need to be workable and consistent with the approach we are taking internationally.”
London’s Fears
The U.K. need not fear a loss of autonomy or harm to London’s position as a financial center, Monetary Affairs Commissioner Joaquin Almunia said.
“I’m sure that they are fully aware about the need to react to the failures that are at the origin of this crisis,” Almunia said to reporters.
The overall plan follows recommendations by an advisory group led by Jacques de Larosiere, a former head of the Bank of France and the International Monetary Fund.
The ECB, which pushed for a part in overseeing banks during the commission’s policy review, would gain a leading role in the proposed European Systemic Risk Council. That body, mainly made up of central bankers, wouldn’t have power to make rules or force regulators to take action on its warnings.
The panel would instead comb data supplied by regulators to search for troubling patterns, such as a build up of investments in U.S. subprime mortgages. It would rely on “peer pressure” to spur regulators to act on any recommendations, Almunia said.
“We will study the proposals carefully,” said Niels Buenemann, an ECB spokesman. “It is too early to comment on their contents.”
The Bank for International Settlements yesterday called for giving central banks more supervisory authority over financial companies.
U.S. Shakeup
The U.S. is also shaking up its regulatory system. The administration of President Barack Obama is considering a plan to give the Federal Reserve more authority to oversee big financial companies. Other changes may include creating a new agency to enforce consumer rights.
The EU faces the additional challenge of linking up sovereign governments, as seen in the case of Fortis, the financial company broken up in bailouts by the governments of Belgium, the Netherlands and Luxembourg.
“You would think the present crisis would have spurred ministers and supervisors to find better ways of working together,” McCreevy said. “I am afraid the crisis has had an opposite effect,” with authorities failing to inform each other of problems at multinational banks.
To contact the reporter on this story: John Rega in Brussels at jrega@bloomberg.net.
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