EU diplomats edge closer to deal on banking watchdogs

Trade the News

Thursday September 02, 2010 01:47:12 AM GMT

* New agencies central to financial reform in Europe

* Authorities set to get final say over national regulators

By John O'Donnell

BRUSSELS, Sept 2 (Reuters) - European Union diplomats edged closer to agreement on Thursday to set up pan-EU financial watchdogs by the start of next year, to lead a clampdown on the bankers that many blame for the worst recession in a generation.

The trio of new agencies, to monitor banks, insurance companies and trading on markets, will be complemented by a group attached to the European Central Bank that will keep watch for other economic risks like a property price bubble.

"We are a short distance away from having an agreement -- we are ironing out a few more creases," said Peter Skinner, a British member of the European Parliament involved in the talks between diplomats from EU member states and the European parliament.

Sven Giegold, a German parliamentarian, said: "I expect there will be a deal."

The shake-up, controversial because Berlin and London feared it would undermine their own authority over the financial sector, establishes agencies that can overrule a national regulator like the Bank of England.

But their resources as well as freedom to sideline national agencies will be limited.

Their creation nonetheless centralises financial supervision in Europe, a more fundamental shift than any foreseen in Washington.

"We had supervisory failures big-time," said Nicolas Veron of Brussels think tank Bruegel. "So we need to fix the system. The new agencies are starting small but this is the first time in the world that we have the creation of supra-national financial authorities."

It also clears a hurdle to writing many of the other rules for financial reform which depend on the creation of the new authorities.

It would, for example, be up to the new markets agency to impose any bans on short-selling if markets wobbled.

"These new authorities will have the final word in mediating a dispute between national authorities in a case like Fortis," said Karel Lannoo of the Centre for European Policy Studies, a Brussels think tank.

Politicians are keen to prevent a repeat of the Fortis debacle, when an unexpected decision by the Netherlands to nationalise parts of the financial group in its territory forced neighbour Belgium to do the same.

"They (the new authorities) will be in charge and this is a historical change. Although lack of money will hinder their work, some, for example in markets, could become as powerful as the SEC (U.S. Securities and Exchange Commission)." (Reporting by John O'Donnell; editing by Stephen Nisbet))

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