Banking regulators are urging the European Parliament to amend plans for a new system of financial supervision in the EU, because they are concerned that it would place too much power in the hands of the European Commission.
The Committee of European Banking Supervisors (CEBS), which includes national supervisors and central bankers from the member states, wants MEPs to reduce the role envisaged for the Commission in drawing up binding technical standards for banks.
The standards are supposed to ensure that European banking regulations are applied uniformly across the EU, reducing the scope for regulatory arbitrage.
The Commission’s proposals for the new supervisory system, made in September 2009, envisage that the technical standards will be drawn up by CEBS (which under the proposals would be rebranded as the European Banking Authority, EBA), but that the Commission will have the power to reject or amend them. This proposal was left essentially unchanged by finance ministers when they reached a deal on the supervisory reforms in December.
The Commission “should not have the ability to change binding technical standards,” Arnoud Vossen, CEBS’s secretary-general, said. He said that the Commission’s role should be limited to checking that the EBA had not exceeded its mandate or acted in a way contrary to existing laws, and approving or rejecting the standards as appropriate. He said his impression was that “the Parliament is very much in favour of our proposal”.
The Commission drew up its proposals for the new supervisory system on the basis of recommendations made by Jacques de Larosière, the former managing director of the International Monetary Fund. The new system, which is supposed to prevent a repeat of the financial crisis, would consist of three micro-prudential authorities with binding powers (the EBA and parallel authorities dealing with the insurance and securities sectors) and a European Systemic Risk Board (effectively an extension of the European Central Bank) that would monitor risks at the macro level. The new system is supposed to be up and running this year.
Ministers agreed in December that a national government should be allowed to suspend the application of the authorities’ decisions if it felt the decision impinged on its “fiscal responsibilities”. The Parliament’s four largest political groups have criticised this power to suspend, arguing that it could slow down decision-making and jeopardise the effectiveness of the new system. It has also been criticised by de Larosière.
The Parliament’s lead MEPs on the supervisory package are preparing their draft reports, with a view to their adoption in plenary before the summer.
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Vossen said that his personal opinion was that the power to suspend was “quite balanced” and that ministers had shown themselves able to take decisions “very quickly” during the financial crisis. “The proof of the pudding is in the eating,” he said.
Vossen said that the EBA’s prime concern was what “scope” it would be given to use its binding powers (eg, which types of regulation will be given to the EBA for the development of technical standards). He said that this would not be settled in the legislation setting up the new system, but worked out in amendments to individual financial regulations.
The first package of amendments (Omnibus I) was proposed by the Commission in October. Vossen said his impression was that governments wanted to give the EBA a “bit less scope” than that proposed by the Commission. “We need to see what the Parliament will say,” he added.
Vossen said that CEBS was already busy preparing for its transformation into the EBA. The committee envisages increasing its staff numbers from 20 to 90 to cope with its new responsibilities.