Today, the European Commission (EC) issued a Communication on Financial Supervision in Europe, which proposes a set of "ambitious" reforms to the current architecture of financial services committees to be set forth in new legislation later this fall. The financial supervision package proposed in this Communication involves the following two key elements:

(1) a European Systemic Risk Council (ESRC), which would monitor and assess risks to the stability of the European financial system as a whole ("macro-prudential supervision"), by "providing early warning of systemic risks that may be building up and, where necessary, recommendations for action to deal with these risks." The ESRC would have a broad representation of institutions to "ensure a global macro-prudential perspective," given that moving supervisory responsibilities to a single supervisor at the EU level is "not realistic" nor "effective."

(2) a European System of Financial Supervisors (ESFS), which would supervise individual financial institutions ("micro-prudential supervision"), and consist of a "robust network of national financial supervisors working in tandem with new European Supervisory Authorities, created by the transformation of existing Committees for the banking securities and insurance and occupational pensions sectors." The ESFS would coordinate with national supervisors in crisis situations and facilitate cooperation and exchange of information between authorities, "helping to define and implement the right decisions."

According to the published FAQs, the ESRC would "fill an important gap in financial supervision in the EU," by playing a key role as part of the global network to monitor systemic risk more effectively (in conjunction with the Federal Reserve and the newly formed Financial Stability Board), "in order to detect potential crises earlier and to mitigate their impact." During today's Joint Press Conference on European Financial Supervision held in Brussels, EC President José Manuel Barroso stated that the above proposals are a "key part of the European Economic Recovery Plan," and are important for Europe to show "the collective political will to tackle future systemic risks before they get out of control."