Just days after the landmark G20 summit on the global economy, European finance chiefs struggled on Saturday to put into practice promises to overhaul the embattled financial sector.
Efforts by EU finance ministers and central bankers to push for tighter European oversight of the financial sector ran up against stiff resistance mainly from Britain, eager to protect its vast banking industry.
International unity on tightening financial regulation, which was much vaunted at Thursday’s G20 summit in London, was also put to the test with the European ministers deeply troubled at a meeting in Prague over a recent US move to relax accounting standards.
The EU ministers’ new drive to improve Europe’s hodge-podge of supervisory bodies overseeing their financial sector was clouded by British reservations about just how far the shake-up should go.
The ministers broadly agreed to push ahead with recommendations from a high-level panel headed by former IMF chief Jacques de La Rosiere, which has called for a new early warning watchdog that would be chaired by the European Central Bank.
French Finance Minister Christine Lagarde said that Britain, which does not use the euro and has its own central bank, had expressed reserves about a group headed by the European Central Bank (ECB) “as if the ECB were only a eurozone body.”
“We have to find a joint solution because we can’t leave London out of the system. London’s role in finance is too big,” she said.
ECB chief Jean-Claude Trichet also sought to allay British concerns, insisting all EU central banks would have their say at the new risk watchdog.
“I insisted on the need to be clear about the fact that the new risk council would not only be the eurosystem, but the system of all the European central banks ... including those that are not members of the eurozone,” he said.
However, there were also reservations among other countries about whether planned centralized networks of supervisors that will oversee individual banks should have the authority to hand down binding orders.
Concerned about a new gulf opening up between Europe and the US, the ministers also called for their accounting norms to be relaxed in line with recent US moves to give banks more breathing room.
Under pressure from Congress, the US Financial Accounting Standards Board voted on Thursday to modify the “mark-to-market” accounting standard, which has been blamed by some for worsening the global financial crisis.
The changes will allow banks to hold some toxic assets to give them more time to recover in conditions where financial markets are frozen, rather than regularly marking their prices down to currently depressed market prices.
“These changes could result in a significant divergence of international accounting practice for financial instruments,” the ministers lamented in a joint statement after the meeting.
They called on the standard-bearer for Europe, the London-based International Accounting Standards Board, to work with its US counterpart “with the aim of achieving equivalent treatment” for European banks.
The ministers said that bringing the international accounting standards in force in Europe in line with the US rules was necessary to “avoid risks of competitive distortions emerging.”
“We don’t want a transatlantic imbalance to arise,” German Finance Minister Peer Steinbrueck said. “We want similar, flexible measures for banks operating in Europe.”