Wednesday May 20, 04:39 PM
Brussels plans tougher EU financial monitoring
BRUSSELS (AFP) - The European Commission will next week unveil plans for the ECB to head up a tough financial monitoring system to be in place by 2010, but the measures face opposition from Britain, sources said Wednesday.
One of the key proposals is the creation of a new European Systemic Risk Council (ESRC), possibly chaired by the European Central Bank, which would provide EU nations with an early warning of threats to financial stability.
That body "would not have any legally binding powers," said the draft of a European Commission report seen by AFP. Some nations, including France, have called for stronger powers to be given to the body.
The draft report also suggests setting up a "European System of Financial Supervisors" (ESFS), consisting of three new EU bodies with legal authority to supervise the banking, insurance and securities sectors.
The ESFS would help "safeguard financial soundness" of financial firms and protect consumers, the paper said.
"The weakness of the present arrangements for macro-prudential supervision have had dramatic consequences across the global financial system," it added.
"Many of the imbalances that accumulated in the global financial system before the crisis can be attributed to excessive credit expansion and surging asset price inflation, amid a general under-pricing of financial risk in a period of sustained non-inflationary economic growth," it continued.
The report said the system should be up and running by 2010 rather than 2013 as originally proposed by a high-level advisory group and that the chairperson of the ESRC should be the ECB president or any central bank governor.
"The discussions are focussed mainly on the composition of the risk council, on whether its president is the ECB's presidency," a diplomatic source said.
"The British are calling for a much broader composition, like a general assembly which would be less effective, which is what they want," she added.
Britain, not part of the eurozone and hence not involved in the European Central Bank, had previously expressed reservations at these important powers resting with the ECB.
The ESFS authorities will have powers to settle disputes between national supervisors on cross-border operations.
Britain, the biggest financial sector power in Europe, is opposed to giving legally constraining powers to such pan-European authorities.
The question London is asking is "how far is it legal for an EU authority to countermand the decision of a national supervisor without the authority of the courts," a diplomatic source close to the dossier said.
Elsewhere the draft proposals foresee giving the European authorities powers to supervise certain pan-European entities such as credit rating agencies and central counterparty clearing houses, which organise interbank loans.
The British see a problem here too, wondering where the money will come from if there is European control and entities need bailing out.
The European Commission report will be presented next Wednesday and will be considered at a meeting of EU finance ministers next month.
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