EU finance ministers to overhaul financial supervision

Finance ministers from European Union (EU) member states were expected to agree on an overhaul of financial supervision across the 27-nation bloc as they arrived here for a two-day meeting Monday.

Following months of bargaining, negotiators from EU governments and the European Parliament clinched a political deal last week on the creation of a new financial supervisory framework for the EU, under which three new pan-EU financial watchdogs would be created to strengthen micro-prudential supervision and a European Systemic Risk Board (ESRB) would be established for macro-prudential supervision.

The three new watchdogs would be responsible for overseeing banks, insurance companies and trading on markets respectively. They would work in tandem with the existing national supervisory authorities to safeguard financial soundness at the level of individual financial firms and protect consumers of financial services.

As regards multi-national financial institutions, the watchdogs could impose legally-binding mediation in the event of disagreements between national supervisors. If no agreement could be reached within the relevant college of supervisors, they can even impose supervisory decisions on the financial institution concerned.

They would also combine nationally based supervision of firms with strong coordination at the European level so as to foster harmonized rules as well as coherent supervisory practice and enforcement.

If a national supervisor implements EU financial rules incorrectly, the watchdogs may raise the alarm, issue instructions and, if these go unheeded, directly instruct the financial institution to remedy any breach of EU law.

The ESRB would monitor and assess potential threats to financial stability that arise from macro-economic developments and from developments within the financial system as a whole. To this end, the ESRB would provide an early warning of system-wide risks that may be building up and, where necessary, issue recommendations for action to deal with these risks.

This new financial supervisory framework would greatly contribute to a safer, sounder, more transparent and more responsible financial system, working for the economy and society as a whole, the EU said.

Based on the political deal, EU finance ministers would work on the final details in the legislative text. The European Parliament would give its vote later this month. If everything goes well, the new EU financial supervision architecture would be in place as early as January 2011.

Besides the overhaul of financial supervision, EU finance ministers would discuss reform of the International Monetary Fund (IMF) after the United States unexpectedly pushed for a major reshuffle of the 24-seat board of directors of the IMF.

The reshuffle may give emerging economies more say on the IMF board of directors and see the seats held by EU countries to be reduced.

European Central Bank President Jean-Claude Trichet said Thursday that Europe needed to speak with a united voice to ensure that it retains its influence in the IMF.

It seems unlikely that EU finance ministers would decide to cut the number of their seats at the executive board of the IMF any time soon, despite pressure from the United States, Brussels-based media EUActiv reported, citing unnamed EU sources.

EU finance ministers would also use their first meeting after the summer break to continue the ongoing reform aimed at improving economic governance and discuss the possible introduction in the EU of a levy on banks and a tax on financial transactions, which remain controversial among EU capitals.

Although EU leaders agreed in June to strengthen budgetary discipline as a response to the Greek debt crisis, the finance ministers would find themselves mired in sticky details, such as possible sanctions against those countries which breach EU budgetary rules in the future.

On both bank levy and tax on financial transactions, EU finance ministers would exchange their views and no decision was expected to be taken, EU officials said.

Source: Xinhua