Brussels, 03/04/2009 (Agence Europe) - Experts on the Council's Financial Services Committee (FSC) compiled a report at the end of March 2009 assessing recommended changes to the financial supervision system in the EU, published at the end of February 2009 by the 'Larosiere Group' (see EUROPE 9848). The recommendations will strongly influence the European Commission's new draft legislation in this domain, expected to be published at the end of next month, and will be discussed on Saturday 4 April 2009 by the EU27 finance ministers and central bankers at an informal meeting in Prague, the Czech Republic. Close sources explain that things have moved on from simply approving or rejecting the Larosiere Report because the spring European Summit showed that it was now a matter of finance ministers “owning” the recommendations and taking them on board. The idea of financial supervision of one section of the macro-economic system in the EU has been welcomed by member states, partly because it will not involve the transfer of any powers from member states to the EU, explains the FSC report, which this newsletter has seen. The recommendations on micro-prudential financial surveillance, however, are being queried by several member states, which do not want to move towards an institutional change that would leach powers from member states to Europe.
Macroeconomic supervision. The Larosiere Group recommends that a European Systemic Risk Council (ESRC) be set up at the European Central Bank (ECB) to warn of macroeconomic risks to financial stability. On Saturday 4 April 2009, the Czech Presidency will ask the ECOFIN Council questions about the extent, composition and functioning of the ESRC, explained a Czech diplomat. In terms of the powers to be granted to the ESRC, the FSC is considering the scope of its analysis, the way it will collect information, the geographical extent of the early warning system and advice, whether its advice should be binding, the type of advice to be provided, how the early warning system and advice is to be followed up and who the ESRC should report to. The FSC notes that some member states have strongly opposed the idea of the ESRC being able to give instructions to national supervisors. In a letter to the Czech Presidency in early March 2009, British Chancellor of the Exchequer Alistair Darling said he favoured the idea of setting up a systemic risk committee as long as it did not have any direct powers over national supervisors. The ECB is happy with the role set out for the ESRC but is reported to be calling for greater powers all the same. There are doubts about who would be on the ESRC - should the European Commission, national supervisors and national ministers be represented? Should it be chaired by the president of the ECB? The connections being planned between the new committee and international organisations like the IMF and the Financial Stability Forum do not appear to ruffle any feathers. The G20 summit has given the IMF and other international financial organisations greater powers to shore up international financial stability.
Microeconomic supervision. The Larosiere Group recommends the establishment of a European System of Financial Supervisors with responsibility for microeconomic supervision. This decentralised network would comprise the three independent EU authorities that would be created by altering the three existing EU committees of national regulators (CESR, CEBS, CEIOPS), with around four dozen national supervisory colleges monitoring cross-border institutions and the 27 national supervisors who would continue to supervise the daily work of the establishments in their country. Along with setting up this system, it is planned to harmonise rules to reduce the differences between the various countries.
The CSF says there is strong political support for a detailed agenda for the harmonisation of rules and standards and the elimination of national exemptions in the financial services domain. Most national delegations say they are prepared to consider a sharing of coercive powers for the new European authorities over decisions taken individually by the national supervisors or in the event of disagreement among supervisors on the same college. The FSC points out that some member states disagreed with the idea of giving any binding powers to EU-wide supervisory authorities. The Czech Republic is reported to be one of the countries opposed to the idea. Views are also divided over whether the EU authorities should be given the power to register and monitor financial rating agencies and “post-market” structures.
Burden sharing. The idea of setting up an EU-wide financial supervisory system faces a major problem in that apart from a Memorandum of Understanding (MoU) that was amended in 2008 (see EUROPE 9503), there are no rules on the sharing of the financial burden in the event of the bankruptcy of a pan-European bank. The FSC points out that some countries have stressed the connection between supervision and crisis management, and others have regretted the lack of press on burden sharing in the Larosiere Report. Alistair Darling says financial supervision should remain closely connected with countries' budget responsibilities. Speaking at the EP on Monday, the chair of the Basel Committee, Nout Wellink (Governor of the Dutch Central Bank) said that deciding who should pay the bill would be the next stage of the Larosiere Report. (M.B./transl.fl)