PRAGUE – At the close of last year, European Union finance ministers gave the green light to a new supervisory architecture for the EU’s financial markets. Now it is up to the European Parliament to address this hypersensitive issue, the most controversial part of which is the powers and responsibilities to be given to the three new pan-European supervisory agencies for banking, securities, and insurance.
The parliament’s decision will be far-reaching, and will affect European finance for many years to come. Although some complain that December’s compromise on financial regulation does not go far enough, there is a case to be made that the opposite is true.
The springboard for this fundamental policy shift was the report issued in early 2009 by former French central banker and IMF chief Jacques de Larosière. But his report ignored many vital issues that were then largely overlooked in the subsequent debate on financial reform.
As the crisis that began in 2008 has shown, there are too many, rather than too few, supervisory and regulatory institutions overseeing European financial markets – almost 70 in the EU as a whole. De Larosière and the political debate he fostered completely gave up on first simplifying and consolidating institutions at the national level, and only then perhaps building a supranational body on that pared-down foundation. Instead, we are starting directly with what will be entirely new Europe-wide institutions.