Europe took a big step closer on Thursday to its goal of creating cross-border financial supervisors, reaching a “crucial milestone” in efforts to reform a sector blamed for the global recession.
EU states, the European Commission and European lawmakers reached a deal in principle to establish three agencies that will oversee banks, insurers and markets, European Internal Market Commissioner Michel Barnier said.
The agreement also creates a European Systemic Risk Board which would look out for threats to the region’s economy following months of negotiations.
“We have reached a crucial milestone,” Barnier said. “We have reached a political consensus on the creation of a European financial supervisory framework.”
The deal must be approved by EU finance ministers meeting in Brussels on Tuesday and the European parliament sometime this month. The EU hopes to launch the new agencies in January.
Europe is lagging behind the US in efforts to regulate the financial sector as US President Barack Obama signed into law in July the most sweeping reform of Wall Street since the 1930s.
European states reached their own compromise late last year, despite reluctance from Britain to grant too much authority to the new agencies.
“The fact is that we did not see the crisis coming. We did not have the monitoring tools to detect the risk which was accumulating across the system and when the crisis hit, we did not have effective tools to act,” Barnier said.
The new bodies will give Europe “the control tower and the radar screens needed to identify risks, the tools to better control financial players and the means to act quickly, in a coordinated way, in a timely fashion,” he said.
Oversight of the financial sector is in the hands of national supervisors.
Britain, home to one of the world’s biggest financial centers in London, has insisted that decisions of the pan-European agencies should never interfere with a state’s fiscal sovereignty.
London fought to limit the ability of the European agencies to intervene in a crisis by obtaining the right to appeal their decisions. European lawmakers believed this mechanism would weaken the supervisors, but a compromise was reached on Thursday that would prevent any “abuse” of the safeguard, negotiators said.
Britain, which is not a member of the euro single currency area, was also reluctant to make the president of the European Central Bank (ECB) the head of the systemic risk board, but negotiators agreed to make ECB President Jean-Claude Trichet head of the board for five years, although the next appointment would be up for discussion.
A British government spokesperson welcomed the deal, saying it was “a very good outcome for the UK, fully reflecting the priorities secured by” British Chancellor of the Exchequer George Osborne.