EU plans to establish new regulatory bodies

Just as the Obama administration unveiled yesterday its plan to reform the financial system, some news is coming out of the EU involving plans to establish the European Systemic Risk Council that would aim to ensure the presence of financial stability as well as another body that would monitor the performance of different financial institutions in the bloc.

This comes prior to a 2-day summit to begin today focusing on how much power to give to regulatory bodies.  In a speech given yesterday, Bank of England head Mervyn King first spoke of the need to “consider forbidding banks from combining government-guaranteed retail operations with riskier investment-banking business, and said the government hadn’t given the central bank the tools to fulfill its new responsibility for financial stability.”

Some other plans and agreements include: overseers couldn’t force countries to pay for bank bailouts and that the ECB or another risk council member would head the supervisory group that will be established.

However, this is meeting some opposition from the UK:

The U.K., home to the region’s largest and most lucrative financial-services market, is resistant to pan-European regulators supervising individual banks and other financial-system players. France and Germany, among others, say the financial crisis has exposed flaws in the bloc’s patchwork of national rules and enforcement bodies. They have called for a stronger EU-wide authority.

More from the WSJ.

Apart from this, Bloomberg is reporting that the BoE governor sees the need for banks to raise more capital in order to ensure financial recovery.

From Bloomberg:

“It may take further additions to equity capital before the banking system will be able to supply credit at a price and on a scale to finance a sustained recovery,” King said in a speech at the Mansion House in London today. “It is too soon to reverse the extraordinary policy stimulus that has been injected into the U.K. economy through monetary policy.”

He added:

“When appropriate the Monetary Policy Committee will raise bank rate and gradually run down its portfolio of assets in a manner consistent with maintaining orderly markets.  It is also necessary to produce a clear plan to show how prospective deficits will be reduced during the next Parliament.”

More on this Bloomberg report HERE.


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