The general rapporteurs’ opinion is that more European integration is necessary in the field of financial supervision. They also argue that the structure which existed during the crisis led to fragmented responses and prevented a clear picture from emerging for the supervisory committees.
On the 10th May MEPs in the Economic and Monetary Affairs Committee will be voting on the reforms they wish to see made to financial supervision in Europe. This document provides a synthesis of why reform is generally needed and also an indication of the main proposals which will be voted upon. A short list of links to further information is also provided.
This document is intended as an aid to understand the vote in the EP's economics committee.
What is the current situation for financial supervision in Europe?
The current EU financial services committees (1) have advisory powers and can issue non-binding guidelines and recommendations. National supervisors of cross-border financial institutions must co-operate within colleges of supervisors. In the event of disagreement however, there is no mechanism to resolve the issue. Many technical rules are determined at Member State level, and there is considerable variation between Member States. Even where rules are harmonised, application can be inconsistent. This fragmented supervision undermines the single market, imposes extra costs for financial institutions, and increases the likelihood of failure of financial institutions with potentially additional costs for taxpayers.
Why is change to this structure needed?
The economic and financial crisis of 2007 - 2008 shed light on some serious shortcomings in the existing system of financial supervision in Europe. Due to the single market financial institutions can operate across borders easily. Their supervision however remains uneven and often uncoordinated. A stronger EU financial sector for the future is seen as dependent on convergence between Member States on technical rules, and a mechanism for ensuring agreement and co-ordination between national supervisors. A rapid and effective mechanism to ensure consistent application of rules is also seen as necessary, as is co-ordinated decision making in emergency situations. The current advisory financial services committees are not currently equipped to carry out these functions
Work in the European Parliament
It is first worth remembering that long before the crisis the European Parliament regularly pointed out the significant failures in the EU’s supervision of ever more integrated financial markets. Most notably in 2000 a resolution raised the point that stateless financial groups called into question the traditional structure of supervision. In 2002 a resolution called for the setting up at the EU level of a system for the monitoring of systemic risk. Then, in 2008 MEPs called for the supervisory committees to be given a legal status and the ability to issue binding decisions on national supervisors.
In the case of this package, the rapporteurs were chosen in October 2009 and presented their draft reports in the Economic and Monetary Affairs committee in February 2010. Four rapporteurs (1) are responsible for piloting the EP’s position on the four different bodies to be set up with another three rapporteurs (2) responsible for the more technical aspects of the package.
What is the general position of the EP rapporteurs ?
The rapporteurs have signalled that more European integration is necessary in the field of financial supervision because the only other option is to have a less open single market. They also argue that the structure which existed during the crisis led to fragmented responses and prevented a clear picture from emerging for the supervisory committees. For these reasons they consider that the De Larosière report’s suggestions are the lowest possible level for effective supervision in the EU.
What are the proposals for the European Systemic Risk Board (ESRB) ?
The objective of this board would be to assess and prevent potential risks to financial stability in the EU properly and swiftly.
Among other proposals, the rapporteur is suggesting that :
· The three sector specific authorities should all be located in Frankfurt, together with the ESRB so that collaboration will be improved and decision making in times of crises sped up
· The ESRB should not only be empowered to warn of an imminent emergency in the system but also to declare its existence. These warnings would be transmitted through the European Parliament and the three sector specific authorities and not only through the Council.
· The ESRB should be able to request information from undertakings which are not covered by one of the three sector specific authorities
· The European Parliament is granted more oversight powers regarding the work of the ESRB
· The composition of the ESRB's board is widened to include persons from other fields to that of central banks.
What are the next steps ?
The EP's Economic and Monetary Affairs committee will vote on the package of regulations on the 10th May. After this, discussions between the EP and the Council will take place to hammer out a solution acceptable to both sides. It is envisaged that a vote in plenary will be taken during the June session.
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