Row over supervision reforms

Council and Parliament clash over reform plans as MEPs say an ambitious approach is needed.

The European Parliament is heading for a clash with national governments over reforms to financial market supervision

The vote on 10 May could endanger attempts to get a planned new EU supervisory system up and running by 1 January – the target date agreed by national governments, the European Commission and MEPs.

There are even concerns that member states, whose attention and energy have already been diverted by the Greek fiscal crisis, may lose enthusiasm for agreeing a new supervisory structure. The Parliament’s legal service said last week that the version of the legislation prepared by MEPs would probably contravene EU primary law.

But MEPs insist that an ambitious approach is necessary if the reforms are to prevent a repeat of the financial crisis.

While the reforms follow a similar structure to those agreed by finance ministers, creating EU authorities with responsibility for overseeing sound regulation of the banking, insurance and securities markets, the Parliament is expected to give the authorities much stronger powers.

Systemic risk

Major changes include that the new authority for the banking sector should direct how national regulators supervise banks that present a “systemic risk” to the European economy. The Parliament’s legal service warned last week that this was unlikely to be in line with a ruling from the European Court of Justice in 1958, which says that the Commission cannot hand “discretionary” powers to another body.

José Manuel García-Margallo, a Spanish centre-right MEP who is drafting the Parliament’s stance on banking supervision, disagrees with this opinion. “I don’t think that’s a solid case,” he said. “The problem is not the legal problem…the problem is the political will.”

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The report also proposes that the authority should contain a banking resolution unit, with responsibility for winding up banks that get into financial difficulties. It would be able to cover the costs of doing this by drawing on a European Stability Fund.

Michel Barnier, the European commissioner for the internal market, has moved away from earlier plans to propose a single European fund because of resistance from finance ministries.

The draft report, which has strong support among the Parliament’s political groups, also proposes replacing national bank-deposit guarantee schemes with a pan-European one. The Parliament’s economic and monetary affairs committee will vote on the report on 10 May, with a vote in plenary session to follow on 15 June.

Barnier warned this week that “time is running out” for an agreement between the Parliament and the Council of Ministers.

Compromise

Lucas Papademos, the vice-president of the European Central Bank, told MEPs on Tuesday (27 April) that he thought the Commission’s original proposals (which do not contain any of the Parliament’s ambitious ideas) was the most realistic basis for a compromise. “We should not risk losing momentum,” he said.

García-Margallo said that he was “very ready and prepared” to discuss compromises with the Council. He said that his proposals were an attempt to prevent regulation of financial services from developing in a “nationalistic way” in the wake of the financial crisis.

He also said that a second reading on the package, if needed, could proceed “very, very quickly” and would not endanger the 1 January target.