Showdown over supervision

Parliament may make radical changes to plans but member states are concerned about lack of control.

The European Parliament is heading for a clash with EU governments over plans to give supervisory powers over large banks to EU-level authorities and to create a European rescue fund for financial institutions. 

The European Commission last year proposed a package of reforms in financial supervision, including the creation of three EU-level authorities (a European Banking Authority, a European Insurance and Occupational Pensions Authority, and a European Securities and Markets Authority) with binding powers to settle disputes between national regulators.

Finance ministers agreed in December to reduce significantly the powers that would be given to the authorities, compared to the Commission’s proposals. EU governments are concerned that they would be financially responsible for bad supervisory decisions over which they had no control.

Member states have warned that the Parliament will endanger any possibility of supervisory reform if it makes radical changes to what was agreed.

Spanish centre-right MEP José Manuel García-Margallo, who is leading the Parliament’s work on the European Banking Authority (EBA), is, however, advocating far-reaching changes to the finance ministers’ agreement. He wants the EBA to be directly responsible for financial institutions of a “European dimension”.

García-Margallo is also calling for the creation of a European Financial Protection Fund that would bail out large banks in times of crisis. The fund would be financed primarily by contributions from banks themselves, with standing resources totalling 2.5% of EU gross domestic product (GDP). Member states would contribute to the fund only as a last resort. The fund would be managed by a board appointed by the EBA. Both these ideas go beyond the Commission’s original proposals.

Disagreement

Peter Skinner, a UK centre-left MEP who is leading the Parliament’s work on the new insurance authority, is among those concerned that the proposals could block chances of reaching a deal with governments. He said that he disagreed “fundamentally” with their inclusion in the Parliament’s opinion on the supervisory package, and that the proposals presented practical and legal problems. “I can’t see how you get 2.5% of EU GDP by 1 January 2011,” Skinner said.

But García-Margallo’s proposals have considerable backing in the Parliament’s economic and monetary affairs committee (ECON), and stand a good chance of being approved when the committee votes on the reform package in May.

German liberal MEP Wolf Klinz, a member of the ECON committee, said he thought direct supervision by the authorities was “the right way to go”. On the fund, he said that there was “probably a majority in the Parliament that says we have to find ways and means to deal with such disasters [as the financial crisis].”

The Commission and governments have said that the reforms, which are supposed to prevent a repeat of the financial crisis, should be implemented by 1 January 2011.