The European Parliament has issued a press release stating that the European Commission’s financial supervisory plans were beefed up by the Economic and Monetary Affairs Committee (ECON committee) with new measures including:

  • A much bigger say for the European Systemic Risk Board before and during crises affecting financial stability.
  • Direct EU supervision of systemically important financial institutions.
  • The right to impose temporary bans on very risky financial products.
  • The designation of two EU stability assisting funds.

The press release states that the ECON committee believes that EU supervision needs to be much stronger than what the Commission and Council are proposing. If backed by the European Parliament as a whole, the ECON committee vote will base all the proposed supervisory bodies in Frankfurt.

The ECON committee text would also grant the European Banking Authority, the European Securities and Markets Authority (ESMA) and the European Insurance Authority new powers, such as the possibility of drawing up draft regulatory financial standards which could then be made legally binding by the European Commission. The text also creates a power to supervise directly systemically important cross border financial institutions, whereby national supervisors would act as agents of the EU authority. It also provides for a binding mediating power in the event of conflicts between national supervisors.

The ECON committee text also provides for the possibility of temporarily banning a financial product if it is felt to pose too much risk. Also the ESMA will be expected to advise on the supervision and regulation of credit rating agencies and clearing houses.

Institutions directly supervised at the EU level would be obliged to contribute to a European deposit guarantee fund and a European stability fund. Contributions would depend on the institutions’ risk ratings.

The ECON committee text as voted aims to ensure that the aim assigned by the Commission to the European Systemic Risk Board (ESRB) - monitoring the build up of risk in the EU economy - is carried out better, more clearly, and can thus be acted upon faster. The ESRB should be empowered not only to warn of an imminent emergency in the economy, but also to declare its existence. The ECON committee text also aims to make risk levels more easily understandable. The ESRB should develop a common set of indicators to permit uniform ratings of the riskiness of specific cross-border financial institutions and make it easier to identify the types of risks embedded in them. To improve overall risk awareness, the text calls for the ESRB to establish colour-coded grades to reflect different risk levels.

The press release states that intensive talks now start between MEPs and the Council to find a deal that satisfies both sides. It is hoped that this deal could then be put to a vote at the Parliament’s June plenary session. If the deal is done in June, then the new supervisory bodies can be set up in 2011.

View MEPs vote to beef up financial supervisory package, 11 May 2010