ECON committee discussed amendments on new ESAs
28 April 2010
The EP is heading for a clash with national governments over reforms on financial market supervision. The new EU supervisory system is planning to be up and running by 1 January 2011. MEPs proposed that the new EBA should direct how national regulators supervise banks that present a systemic risk.
The European Parliament is heading for a clash with national governments over reforms to financial market supervision
The vote on 10 May could endanger attempts to get a planned new EU supervisory system up and running by 1 January – the target date agreed by national governments, the European Commission and MEPs.
There are even concerns that member states, whose attention and energy have already been diverted by the Greek fiscal crisis, may lose enthusiasm for agreeing a new supervisory structure. The Parliament's legal service said last week that the version of the legislation prepared by MEPs would probably contravene EU primary law.
Major changes include that the new authority for the banking sector should direct how national regulators supervise banks that present a “systemic risk” to the European economy. The Parliament's legal service warned last week that this was unlikely to be in line with a ruling from the European Court of Justice in 1958, which says that the Commission cannot hand “discretionary” powers to another body.
Clarifications on the Report on the Supervisory package:
1. Article 9: Consistent application of Community rules (agreed upon). To avoid any doubt on the legality of decisions adopted by the Authority, we may specify that the Authority should in those cases impose additional requirements on capital or liquidity on the financial institution that do not comply with decisions issued by the Authority according to paragraph 6.
2. Article 12: Colleges of Supervisors. (Elaboration required)
- EBA should lead the Colleges of Supervisors.
- EBA should exert a reinforced supervision of institutions identified under Article 12 b) (financial institutions with EU dimension/ systemic institutions), requesting relevant information, evaluating models of business, risks assumed by those institutions, the degree of interconnection, the degree of the exposure and so on.
- EBA may issue regulatory and implementing standards for cross border institutions (Article 12. 3a)) and additional standards for financial institutions with EU dimension/ systemic institutions.
- EBA should issue draft regulatory standards establishing "firewalls" and all ex-ante orderly wind-up and dissolution procedures for financial institutions with EU dimension/ systemic institutions.
- When, according to the Risk Dashboard referred to in Article 12 a) paragraph 3, as systemic risk is envisaged as a possibility (yellow alarm) the institution shall fall under the direct supervision of the EBA.
- When a systemic risk is envisaged as a strong possibility (red alarm) the institution shall be put under the mandate of the Banking Resolution Unit (Article 12c)).
3. Article 12 a) and b): Systemic risk.(Elaboration required)
- We have decided to address the regulation and management of systemic risk, not considered in the Commission's proposal.
- We have also decided to identify the key factors in the probability of generating a systemic risk. Criteria should be defined as the probability of default implicit in CDS and/ or the loss of market capitalisation of the financial institution. Criteria should be consistent with the criteria established by FSB, IMF and BIS
- Those criteria shall be adopted by a regulatory standard (Article 7). No legality issues arise as commission should endorse those standards.
- As stated supra, the institutions that meet such criteria shall be subject to the reinforced supervision by EBA as stated in article 11 (Supra) or subject to the mandate of the Banking Resolution Unit.
4. Article 12 d) and 12 e): European Deposit Guarantee Schemes and European Stability Funds (Elaboration required)
- This Fund shall be financed by all cross border financial institutions.
- National institutions (operating in a single territory) shall have the option to join this Fund.
- Contributions made to this Fund will substitute those made to national Funds.
- In any case the Stability Fund should take into account costs that should be borne by shareholders or debt holders to avoid moral hazard.
5. Article 23: Safeguards (agreed upon)
- Member States shall not call on the Council to maintain or revoke a decision issued by the EBA in the case of Article 10 (emergency situations)
6. Article 44: Board of Appeals (agreed upon)
- The Board of Appeal shall advice only on legal grounds decisions adopted by the EBA.
- The Board of Appeal shall revoke decisions adopted by the EBA only if they are incompatible with EU law, do not respect the principle of proportionality or run counter to the fundamental principles of the internal market for financial services as reflected in the acquis of European Union financial services legislation.
- The Board of Appeal shall be composed only by legal experts.
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