Yesterday, the Economic and Financial Affairs Council met to discuss the reform of the European Union’s “supervisory framework for financial markets,” following the recommendations of the High-Level Group on Supervision, chaired by Mr. Jaques De Larosiere, “aimed at strengthening the supervisory system and rebuilding trust in the wake of the global financial crisis.” The Council “approved conclusions on the reform of the EU’s supervisory framework for financial services, and agreed to submit them to the European Council.” The Council also discussed recent economic developments and assessed the progress of the bank support scheme and the European Economic Recovery Plan.

On March 19-20, the Council met to examine the key recommendations outlined in the report prepared by the High-Level Group on Supervision and concluded that the report provided the framework to “improve the regulation and supervision of financial institutions in the EU.” The Council reviewed a Commission Communication dated May 27, 2009, and agreed with the objectives set forth in the Communication “which builds on the recommendations of the De Larosiere group.” The Council yesterday agreed to take the following actions with respect to implementing a new supervisory framework:

  • Establish a European System Risk Board: This body will be charged with “continuously assessing the stability of the financial system as a whole,” and with issuing “risk warnings and recommendations to policy makers and supervisors, and monitoring their follow-up."
  • Create three European supervisory authorities: These bodies will deal with “banking, insurance and securities industries” and work closely with national supervisors in the administration and preparation of “technical standards” while ensuring the “consistent application of EU law.”  

The Council has requested that the Commission present legislative proposals aimed with ensuring the implementation of the new supervisory framework by next year.

In yesterday’s meeting the Council also reviewed the progress of the European Recovery Plan, which was implemented in December in the wake of the financial crisis and “provides a framework for [certain] measures taken by each member state.” The Council determined that the present “overall budgetary support provided by member states is currently estimated at around five percentage points of gross domestic product in 2009 and 2010, of which nearly 2% represents measures taken specifically in the context of the European economic recovery plan.” The Council asked the Economic and Financial Committee (EFC) to review certain issues related to the effectiveness of the bank support schemes presently adopted by member states, including the “requirements for bank restructuring in return for state support and the pricing of state guarantees.”