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eu summit: not much visisble progress on european banking union October 18, 2012

Posted by Bradley in : financial regulation , trackback

The Draft Conclusions of the European Council Meeting (via euractiv) don’t suggest that there’s much progress on achieving the European Banking Union although they urge legislators to make progress. Meanwhile, in a speech in Poland, Andrea Enria of the EBA worried about the future of the single market as domestic bank regulators “strongly encourage a de-risking process which also entails lower exposures to counterparts in other more fragile or stressed Member States.” And he made the expertise argument again as a way of resolving the banking union issues:

I would invite to think out of the box and consider also decision making mechanisms that are less based on country representation and more on technical skills and accountability frameworks. We need the best people we have in Europe to design high quality rules and implement effective supervision, in the common interest of savers in the whole area; and we need mechanisms to ensure that their decisions do not unduly penalise any actor in the Single Market. More reliance on independent decision making bodies, composed of experts selected on the basis of their technical skills, would put all countries, in and outside the euro area, on the same footing. It would ensure that decisions are taken in the best European interest, not as a compromise amongst different national positions. Monitoring mechanisms could then ensure appropriate representation of all the Member States, high quality and unbiased processes, and the possibility to call back decisions that are not considered of an appropriate standard.

In a speech at the BBA’s conference Stephen Majjoor of ESMA said this:

I want to emphasise that for large parts of the financial markets the distinction between Eurozone and non-Eurozone member states has very limited relevance. For example, market infrastructures, investment firms, and investment funds span the Eurozone and the non-Eurozone and in all the directives, regulations, technical standards and guidance that are within ESMA’s scope, the Eurozone/non-Eurozone distinction hardly ever plays a role.
In other words, the rationales for developing a single rule book, consistent supervision and a single securities market are not affected by the integration of the Eurozone. We should remain focused on the economic benefits of the single market in securities for all 27 member states and jointly continue our important work of achieving a single rule book and a consistent approach to supervision.

These ideas of having technical experts make the rules and emphasizing the single-rule book seem designed to appeal to financial institutions based outside the eurozone, suggesting that they might benefit from going along with the European Banking Union/Single Supervisory Mechanism. But the broad brush rhetoric runs up against concern about the details (see, for example this report prepared for the International Regulatory Strategy Group of the City of London by Anita Millar).

Update: In report published today the UK’s House of Commons European Scrutiny Committee (focusing on the EU proposals about the EBA/SSM and on the UK Government’s reaction (described in the report)) wrote:

there is potential for harm to UK interests, particularly in relation to the single market. So we presume the Prime Minister will be cautious in expressing any support during the forthcoming European Council for the elements outlined in the report…As for the role of national parliaments in ensuring democratic legitimacy and accountability we are concerned: at the implications of the apparent presumption in the report about the primacy of the European Parliament; and the presumption that democratic legitimacy and accountability of a new strengthened EMU framework and cooperation under Article 13 of the SCG treaty should only be explored within the context of the European Semester.
We remind all concerned in this debate that national parliaments are representative of sovereign states. Incidentally, we note the rather odd phraseology – “we can use”- the Minister deploys. We presume he does not actually mean that governments use parliaments… These matters are of high importance for the UK…we recommend ..[a debate] for three hours on the Floor of the House..In making this debate recommendation we note, notwithstanding the Minister’s comments, that the document will not be cleared from scrutiny until the debate takes place and take the view that actions by the Government which amounted to agreement of the report would be a serious breach of the scrutiny reserve.

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