The leaders of Europe’s economies argue that taxpayers should not be expected to foot the bill for any future financial crises. How can anyone ever forget the multi-billion dollar bail-outs made by governments across the world to help support the banking sector that appeared close to collapse in 2008. So there was rejoice in the air as E.U mandarins finally announced a collective supervisory mechanism .At last the die has been cast and last week after a number of compromises the 27 member block finally agreed to endorse the creation of new banking¸ securities and insurance supervisors ( so termed financial sheriffs in US jargon ). The three wise men will start work on January next year. We shall see the creation of a European Banking Authority¸ a European Insurance and Occupational Pensions Authority and a European Securities and Markets Authority¸ each with binding powers over national regulators. These sheriffs will be hosted in London¸ Paris and Frankfurt respectively. The 3 watchdogs will also draw up technical standards to be applied by national regulators such as the Malta Financial Services Authority covering the areas of banking¸ pensions¸ investments and insurance matters. Although the new mechanism will take away some powers from MFSA¸ we will still have the upper hand as the new rules permit us to overturn the European authorities’ decisions if they impinge on national fiscal competences. However¸ as can be expected¸ this right will be subject to an anti-abuse clause to prevent member states from making frivolous challenges.
This supervision culminates after almost two years of bickering particularly among the British who objected to any undue interference on their much coveted hedge funds industry. All this speaks wonders about the resilience of critics who have voiced their concerns about the heavy cost which Europe has paid due to the 2007/ 2009 banking crisis. It goes without saying that the unprecedented financial crisis started with the sub-prime scandal in the US and peaked with the demise of Lehmann Brothers in 2008. All this turbulence has shaken the value of the euro currency. Such a financial crisis created the need for tougher European supervision of financial institutions¸ which are mainly controlled by national authorities even though the industry is increasingly engaged in cross-border activities. At stake were the European Commission’s proposal on the role of the new EU authorities to oversee cross-border groups¸ and the powers of the European Central Bank within the new European Systemic Risk Board (ESRB)¸ which will send warning signals whenever the entire financial system is at risk. But not everyone wanted extra dollops of controls in its backyard. Particularly the British who still dominate in Europe as the centre hosting a mega hedge fund industry. Few can dispute that hedge fund managers are shy birds which fly on risky adventures to secure superior returns to investors and by nature are wary of undue restrictions. Thus the UK led the criticism on introduction of new watchdogs which can scare away the goose that lays the golden eggs. The City of London which has expressed concerns about the impact of more centralised decision-making in areas such as over-the-counter derivatives¸ securities markets and hedge fund regulation.
As a result it took longer to reach agreement on the sticky issues. There was counter pressure from certain quarters in particular Germany and France and the Obama administration also wanted stiffer supervision so as not to be faced with another massive bank’s bailout in the near future. Following the ongoing discussions one can quote Peter Skinner¸ a British Labour Par