EU executive wants ECB to chair new risk body

The European Central Bank should chair a new pan-European Union body to monitor excessive risks from banks but have no binding powers, a draft EU document showed in a rebuff for Europe's banking capital Britain.
The draft forms a core plank of the EU's response to the credit crunch to make markets safer for investors by spotting the build up of risks earlier and avoid governments again having to fork out billions of euros of taxpayer money to prop up banks.
"The creation of the European Systemic Risk Council will address one of the fundamental weaknesses highlighted by the crisis, which is the vulnerability of the financial system to interconnected, complex, sectoral and cross-sectoral systemic risks," the draft said.
It outlines the EU executive European Commission's legislative plans, due to be published May 27, to put into law a blueprint for supervisory reform laid out by former Bank of France governor, Jacques de Larosiere. "The Commission supports the recommendation in the de Larosiere report that the chairperson of the ESRC should be the ECB president," the draft said.
By sticking to de Larosiere's recommendation for the ECB to chair the new European Systemic Risk Council, the Commission has ignored pleas from Britain and national supervisors not to give too much power to the Frankfurt-based bank and opt for a neutral chair.
The Commission seeks to water down the powers of the risk council by not having any binding powers over a member state, the draft showed. "The ESRC would not have any legally binding powers," the draft added. The Commission has also followed de Larosiere by proposing the creation of a second pan-EU body to ensure consistent day-to-day supervision of markets, insurers and banks and be able to take decisions that are binding on an individual EU state as a last resort, the document showed.
Britain has said such as body should not have any binding powers on a member state, arguing that national regulators are ultimately legally responsible and politically accountable for dealing with problem financial institutions on their turf.
The Commission's proposals will go to a summit of EU leaders in June for endorsement and the executive will come forward with draft laws later in the year. It wants the new regulatory system in place by the end of 2010, faster than de Larosiere forsaw.