features@metroireland.ie In Focus METRO Thursday, September 24, 2009 D Something to bank on? European banking regulation: The EU is planning to overhaul the way banks and other financial services operate BY ROSS McDONAGH T he European Union yesterday unveiled its blueprint for an overhaul of the way banks and financial markets are policed, a central plank of new rules designed to prevent a repeat of the global economic crisis. It plans to create a banking super-watchdog, with power to overrule countries such as Britain, which saw some of the worst financing excesses as epitomised by the head of RBS, Sir Fred Goodwin (pictured, right). The EU now wants to introduce a pan- European supervisor that would warn of early signs of crisis. Our aim is to protect European taxpayers from a repeat of the dark days of autumn 2008, when governments had to pour billions of euros into the banks, European Commission President Jos Manuel Barroso said. The European system can also inspire a global one and we will argue for that at the G20 in Pittsburgh. The laws, which also include the creation of a separate supervisor for insurers and markets, are set to give more say than ever to European institutions. The blueprint is the result of an agreement reached by EU leaders earlier this year and could erode the authority of countries like Britain, which is fighting to keep control over the centrepiece of its economy, the City of London. This package represents rapid and robust action by the Commission to remedy shortcomings in European financial supervision and will help prevent future financial crises, said Charlie McCreevy, the EUs Internal Markets Commissioner. Economic and Monetary Affairs Commissioner Joaquin Almunia said the new European Systemic Risk Board would warn of future crises and other watchdogs would solve weaknesses in the system. The draft laws flesh out principles for reform agreed by EU leaders in June when Britain accepted new pan-EU supervisors for markets, banks and insurers. The rules need the approval of the 27 EU national governments and the European Parliament to take effect. Overhauling the way Europes banks and financial services are policed is central to legislation Brussels has drafted to prevent a new financial crisis. Breaking the mould Its part of a broader range of laws ranging from the curbing of banker bonuses to forcing lenders to make greater financial provisions for hard times, and could break the mould of financial supervision in Europe. But backing from Britain, home to Europes biggest financial centre, will be crucial to plans to set up the new structures by the end of next year. Britain is nervous because the laws will give more say to European institutions. The Risk Board, for example, will be staffed by the European Central Bank and based in Frankfurt, and its likely to have wide- ranging powers such as issuing warnings about risks in the financial system. It could, for example, order a country to take action and if it failed to do so that country would be obliged to explain itself to the Risk Board. Diplomatic sources have said Bank of England Governor Mervyn King could be given a prominent role in European Union super- watchdogs being set up to monitor banks and market risks to win UK backing. Money monitor: The EU is planning to set up a pan-European financial watchdog How the Risk Board will work The European Union has unveiled a blueprint for overhauling the way banks and financial markets are policed. Here is an outline of the plan: Financial Watchdogs Three new groups will watch banks, insurers and exchanges: the European Banking Authority, the European Securities and Markets Authority, and the European Insurance and Occupational Pensions Authority. They will replace three advisory bodies. They will set the bar for supervision standards and establish uniform rules around Europe and their rulebook will become European law. They can tell national supervisors, such as Britains Financial Services Authority (FSA), what they should be doing. If the European Banking Authority, for example, believed the FSA was not meeting EU standards for supervision, it could order it to take action within a month. If the situation persisted, the European Commission could step in and demand the national watchdog take specific action. That supervisor would have to oblige, or explain when it intended to do so, within ten days. A lack of coordination among national supervisors has been blamed, in part, for the financial crisis. In future emergencies, the European Banking Authority will be able to tell a group of country supervisors to take joint action. If a country watchdog challenges such an order, the Banking Authority can ultimately overrule it, but only in cases where the local supervisors action or inac- tion, for example, threatened investors or depositors. The Securities and Markets watchdog will exercise direct power over credit rating agencies, whose generous ratings on packages of loans that later unravelled have been blamed for helping cause the crisis. The Systemic Risk Board will be able to ask these super-watchdogs or country supervisors for information such as what a troubled banks exposure is to a risky region such as eastern Europe or a country such as Iceland. There is an obligation on the new supervisory authorities to hand over information to the Board. European Systemic Risk Board It will sound its sirens if it sees threats to the financial system, such as those that triggered the present economic crisis. It will be able to issue warnings, saying what should be done about risks in the financial system. It could order a country to take action, for example, and that country would be obliged to explain itself if it did not comply. The warnings will be weighty and those who receive them must act although the board will have no binding power in a legal sense, relying rather on political pressure for influence. Warnings could be made public after a vote by the committee in charge of the Risk Board. The board would, in effect, be an arm of the European Central Bank (ECB). Staff will mostly come from the ECB which will also appoint the head of its secretariat. It will be managed by a so-called general board including the ECB president, governors of the regions central banks and a member of the European Commis- sion, the EUs executive. Its chair will be elected by EU central bankers. Many observers believe this places the head of the ECB, Jean-Claude Trichet, as the most likely person to have the post. The chair will have unique powers and will be able to call extraordinary meetings of the board, where he or she also will have a casting vote. The chair will be the public face of the body. WHAT THE EU HAS DONE FOR US... BEYOND THE PALE DURING the past few weeks, weve looked at how the EU has helped Dublin. But its not just the capital that gets all the attention every county in Ireland has benefited directly from EU funding, including commuter counties Meath and Kildare. In Meath, EU funding helped to complete the Trim ring-road, Ashbourne by-pass and the Navan to Balrath road. Bettystown, Navan, Dunboyne, Crossakiel and Rathmoylan have all benefited from village and urban renewal schemes that received EU support, while 22million has been invested into improving childcare facilities and access across Meath. In Kildare, road projects such as the Naas and Newbridge bypasses have benefited from EU funds. Clane, Kilcock, Kildare, Maynooth, Monasterevin, Newbridge, Prosperous, Rathangan and Sallins have all benefited from improved and more accessible broadband internet through an EU co-funded scheme. Between 2000 and 2008, some 15million has been invested in improving childcare services throughout Kildare, while NUI Maynooth also continues to benefit from EU funding through European Research and Development funding. index.html2.html3.html4.html5.html6.html7.html8.html9.html10.html11.html12.html13.html14.html15.html16.html17.html18.html19.html20.html21.html22.html23.html24.html25.html26.html27.html