Negotiators from the EU's three institutions - the EU Council of Ministers, the European Parliament and the European Commission - reached a political consensus last night on the package.
"This is not light-touch regulation. It is comprehensive and intelligent," the chair of the Parliament's economics committee, UK Liberal Democrat MEP Sharon Bowles, told journalists.
A European Systemic Risk Board (ESRB) and three new European Supervisory Authorities - a European Banking Authority (EBA), a European Insurance and Occupational Pensions Authority (EIOPA) and a European Securities and Markets Authority (ESMA) - will form part of the new architecture of financial supervision agreed yesterday.
The trio of new financial watchdogs 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 will have the control tower and the radar screens needed to identify risks," said Michel Barnier, the European commissioner in charge of the internal market, giving his blessing to the four new bodies.
But how tough or independent these bodies will be remains to be seen, say officials.
Delays
The package has suffered long delays over fears, mainly voiced by Britain, that it would impinge member states' fiscal sovereignty. On the other hand, others warned it would produce only decorative changes to financial supervision.
According to last night's deal, the three supervisory bodies will be able to overrule their national counterparts in three agreed scenarios: when the supervisor is in breach of EU law, when there is a disagreement between two or more national supervisors and when an emergency has been called by member states.
The question of who calls an emergency in the EU's banking sector was a point of great contention, with all three institutions haggling for some of the decision-making.
However, it became clear that the Council - which represents the 27 EU member states - would not allow discussions to go forward unless national governments had the sole responsibility to declare a crisis.
Parliament claims glory
MEPs are largely claiming ownership of the fact that the supervisors will have more power than earlier talks had indicated, in particular that the authorities may ban or restrict certain financial products.
"At the insistence of the Parliament, these authorities will now have real teeth. Importantly, with the risks of speculation on financial markets ever present, a Green proposal to ensure the authorities can suspend trading of risky products in certain cases was accepted," said Sven Giegold, a German Green MEP who helped steer the negotiations in Parliament.
The presidency of the ESRB was also a veritable bugbear, with the Council finally conceding a point to Parliament and allowing the head of the ECB to also chair the ESRB.
"We fought hard for the Systemic Risk Board to be chaired by the president of the European Central Bank - a European personality who will bring independence and moral authority to the position as well as a clear identification of responsibility to citizens," said Sylvie Goulard, a French liberal MEP.
The legislation will now be formally adopted by the Parliament in the coming weeks, to be up and running by January 2011.
Doubts remain
On the sidelines of the talks, a Commission official cast some doubt on how important the ESRB is and how effective the institutions will be in practice.
"The ESRB is not the big deal here. The big deal is that the supervision of banks will be subject to stronger common European supervisors," the official told EurActiv.
As promising as the authorities and their respective powers seem on paper, the official also pointed out that how well the bodies perform will depend on how good their staff are.
In addition, more cynical observers note that the same political pressures and infighting that currently exist between the European strongholds of finance - London, Frankfurt and Paris - will still play their part in the functioning of the new system.
The three bodies will in fact be spread across these three trading centres, with the EBA situated in London, the EIOPA in Frankfurt and the ESMA in Paris.
The agreement is now scheduled to be approved by finance ministers on 7 September and be put to an parliamentary vote at the second session in September.
