Path-breaking European Union plans to beef up financial supervision may be replicated globally though much will hinge on how the United States responds, a top official from the bloc's executive said on Monday. A high-level committee headed by former Bank of France governor, Jacques de Larosiere, last month recommended setting up two new pan-EU bodies to plug supervisory gaps highlighted by the market crisis.
The G20 group of nations is discussing a global approach to financial market reforms, including supervision, and meets in April in London. A top official from the European Commission, which will be key in drafting EU law to introduce the new bodies, said reaction has been largely positive so far, particularly from the big member states home to major cross-border banks and insurers.
"I have not heard biting widespread criticism but rather positive comments, as I have privately from a number of member states," David Wright, deputy director general of the Commission's internal market unit. "It's quite possible, likely that the type of ideas the committee put forward on macro prudential supervision and strengthening micro prudential supervision is going to be replicated at the global level and indeed in the United States," Wright said.
"It looks like Europe has the first ideas on the table. I think it's a path breaker," Wright told think-tank CEPS. The committee deliberately avoided coming up with a plan for a single EU supervisor, saying it would simply gather dust as too few member state would accept it. The Commission will publish a European supervisory package in May for EU leaders to endorse in June, with detailed draft legislation to follow later for adoption.
The De Larosiere committee recommended creating a new European Systemic Risk Council hosted by the European Central Bank to monitor risk in the system. CEPS chief executive Karel Lannoo said a systemic risk council looked more like a small parliament than a decision-making body but Wright dismissed the criticisms.
"It's not a tea party but it will have to evaluate risk, analyse and produce warnings, and those warnings have to be acted on," Wright said, adding that it should also interface with global bodies such as the International Monetary Fund.
The second body would group national market, insurance and banking watchdogs into three new overarching pan-EU authorities with binding mediation between national supervisors. The G20 is expected to adopt high-level principles for reforming financial markets and Wright said real action would depend on the EU and United States being committed as they make up 70 to 80 percent of global capital markets. "Otherwise you have to argue you need global institutions and that is a long, long way away," Wright said.
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