Charlie McCreevy, the EU's internal market commissioner, announced yesterday (11 September) that by the end of the month, the EU executive will present proposals to improve and harmonise cross-border financial supervision of banks, one of the weak links in EU crisis prevention mechanisms.
Ahead of an informal meeting of EU finance ministers in Nice today (12 September), Christine Lagarde, the French finance minister, strongly supported a move in this direction, calling for more coordination of supervision.
The push might involve "delegation of some powers", she said in a recorded message to the Eurofi conference, a major two-day gathering of banking and finance professionals in Nice. Ministers put supervision top of the agenda of the meeting, which takes place on Friday and Saturday (12-13 September).
According to Lagarde, European credit institutions do not communicate between themselves enough and are supervised only by national authorities, while their activities have an international impact. As a result, supervisory control of banks is decreasing in proportion to the rise in cross-border financial activity.
She says the current turmoil clearly revealed the trend: regulatory authorities at national level did not see the storm brewing until it was upon them. As banks were hit by the crisis in the US, their exposure to risky products and attitudes was underestimated or simply unidentified by European supervisors.
Following industry suggestions as well, McCreevy has proposed the introduction of a "collegial" mechanism of supervision of cross-border groups by national regulators. Under this scenario, national supervisors would increase their cooperation efforts in order to avoid duplication of requirements and of information requests to banking institutions.
Many argue in favour of extending the supervisory role of national regulators to cover banks or insurance companies when investigating activities in other EU countries. Cross-border players devise their risk management strategies in headquarters, not in subsidiaries, the argument goes. But at the moment, supervision is carried out domestically, regardless of the size and nature of the company.
Both McCreevy and Lagarde appealed to European leaders to reach an agreement on Solvency II, which will also reform and harmonise the way cross-border insurance groups are monitored.
