EU states, parliament agree on financial regulation
European Union member states and the European Parliament on Thursday agreed on how to set up four new supervisory agencies to oversee the bloc's economic development and financial markets, officials said, dpa reported.
At stake is the creation of three European Supervisory Authorities (ESAs) overlooking banking, markets and insurance, as well as a European Systemic Risk Board (ESRB) - attached to the European Central Bank (ECB) - tasked with monitoring risk across the financial system.
The reforms are aimed at preventing a repetition of the 2008 financial crash, which plunged the EU into a recession and forced taxpayers to shell out billions for bank bailouts.
"We have reached a crucial milestone. We have reached a political consensus on the creation of a European financial supervisory framework," said Michel Barnier, European commissioner for market regulation and a mediator in the talks.
"It was a long negotiation," Gianni Pittella, an Italian Social Democratic deputy who took part in the talks, added.
Parliament and EU states had been at loggerheads for months, with deputies calling for tougher rules while Britain battled from within the EU Council of Ministers against overly strict regulation, fearing that it might strangle Europe's largest financial centre in London.
As part of the compromise, EU states accepted deputies' calls to have the ECB president also head the ESRB, ensuring overall consistency between monetary and financial supervisors. But the arrangement is subject to a revision clause after five years.
In return, lawmakers agreed that the power to declare an "emergency situation," which would allow ESAs to issue direct orders to banks and insurance groups, should rest with EU governments rather than with the European Commission.
ESAs would have the power to temporarily ban certain high-risk financial products - such as "naked short selling," which Germany acted against earlier this year - in case they are deemed a threat to the overall stability of the financial system.
Britain had insisted that governments should be able to ignore ESAs in case their orders involve a disbursement of public money - such as in the case of bank recapitalizations. However, EU deputies saw to it that recourse to this safeguard clause be strictly limited.
In normal times, the new EU agencies would coordinate the work of national supervisors. But in case of disagreements, they could embark on a "legally-binding mediation" effort, an EU parliament statement indicated.
Deputies, backed by the European Commission, also wanted ESAs to directly supervise cross-border banks, in order to avoid the kind of conflicts that in 2008 hampered the rescue of the Belgian-Dutch Fortis group.
The proposal did not make it into the final package, but lawmakers and the commission said they would issue a "political declaration" stating their intention to return to the matter when secondary legislation is discussed over the next months.
The political consensus means that reforms are now on track to be in place by January 1. Respecting the schedule is important because other measures in the pipeline, such as a proposal to place credit rating agencies under EU oversight, depend on the ESRB and the ESAs being already functioning.
EU finance ministers are expected to formally endorse Thursday's deal at a meeting in Brussels on September 7, while the European Parliament is set to give its green light during its September 20-23 plenary in Strasbourg, France.