EU ministers near deal on shake-up of bank policing

European Union finance ministers were near a deal to set up new super-watchdogs to police banks following the economic crisis, Swedish Finance Minister Anders Borg said during negotiations in Brussels on Wednesday.

The 27-country EU wants to establish three pan-European watchdogs to keep tabs on banks, insurers and trading exchanges as well as creating a Frankfurt-based agency to watch for bigger systemic risks to the economy.

The bloc’s finance ministers hoped to agree at talks chaired by Sweden, holder of the rotating EU presidency, on how much power to give the new authorities and whether in particular they should be allowed overrule a national watchdog.

”It would be pretty embarrassing if you had a crisis of this dimension and you are not able to take a decision,” Borg told reporters. ”We are getting close. I expect we will take a decision today.”

On banks, the ministers were examining an EU blueprint that would create a London-based body as the ultimate arbiter, which would tackle problems it judges national watchdogs have ignored.

Although there is agreement that existing supervisors failed to head off the worst financial crisis in a generation, the proposed shake-up of the policing of financial services has divided opinion.

Britain and France, whose relations are already strained since the appointment of a Frenchman to oversee the EU overhaul of financial services, have different visions for the watchdogs.

France favours giving them wide-ranging powers. Germany and Britain fear this could create overbearing regulators that would sideline governments and order lenders what to do.

German Finance Minister Wolfgang Schaeuble offered no public comment as he entered the talks in Brussels.

Rule Britannia
Britain, home to Europe’s financial capital, London, has mounted the stiffest opposition.

Suspicious that a Paris-driven agenda lies behind an EU regulatory overhaul, London wants to water down proposed powers, leaving the new watchdogs mainly to draft and police pan-European standards for regulation.

During Wednesday’s negotiations, one British diplomat told reporters outstanding disagreement centred on how to appeal a decision by one of the EU super-watchdogs that could force a national government to spend taxpayer money.

French Finance Minister Christine Lagarde barely disguised her frustration with British opposition on the eve of the talks. ”Certain countries, I am thinking of Great Britain, would rather that the European supervision authorities have limited powers,” she told reporters in Brussels on Tuesday.”

”The real question is whether the [pan-] European authority gets the power to prescribe and make recommendations without getting bogged down in multiple appeals that could freeze the process,” she said.

”If that’s the case then it’s not worth the bother. We may as well just go fishing.”

In a letter published in the Times newspaper on Wednesday, British Finance Minister Alistair Darling warned against giving the new supervisory bodies too much influence, by allowing them, for example, a say over individual companies.

”We must resist measures, however superficially alluring, that could undermine the effective functioning of our cherished single market,” he wrote.

Despite concessions, the new watchdogs are set to give more say than ever to European institutions over an industry blamed by many for triggering the economic slump.

The European Parliament has a say in finalising the law, which could see the watchdogs up and running by the end of 2010. — Reuters

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