European Commission has recently set up proposals to establish two bodies:
a European Systemic Risk Board (ESRB) to monitor and assess risks to the stability of the financial system as a whole (“macro-prudential supervision”). The ESRB will provide early warning of systemic risks that may be building up and, where necessary, recommendations for action to deal with these risks.
a European System of Financial Supervisors (ESFS) for the supervision of individual financial institutions (“micro-prudential supervision”), consisting of a network of national financial supervisors working in tandem with new European Supervisory Authorities, created by the transformation of existing Committees for the banking securities and insurance and occupational pensions sectors. There will be a European Banking Authority (EBA), a European Insurance and Occupational Pensions Authority (EIOPA), and a European Securities and Markets Authority (ESMA).
The ESRB will have the power to issue recommendations and warnings to Member States (including the national supervisors) and to the European Supervisory Authorities, which will have to comply or else explain why they have not done so. The heads of the ECB, national central banks, the European Supervisory Authorities, and national supervisors, will participate in the ESRB . The creation of the ESRB is in line with several initiatives at multilateral level or outside the EU, including the creation of a Financial Stability Board by the G20.
Regarding micro-prudential supervision, currently there are three financial services committees for micro-financial supervision (supervision of individual financial institutions) at EU level, with advisory powers only: the Committee of European Banking Supervisors (CEBS), Committee of European Insurance and Occupational Pensions Committee (CEIOPS) and the Committee of European Securities Regulators (CESR).
- The new Authorities will take over all of the functions of those committees, and in addition have certain extra competences, including the following:
- Developing proposals for technical standards , respecting better regulation principles;
- Resolving cases of disagreement between national supervisor s, where legislation requires them to co-operate or to agree ;
- Contributing to ensuring consistent application of technical Community rules (including through peer reviews);
- The European Securities and Markets Authority will e xercise direct supervisory powers for Credit Rating Agencies;
- A c oordination role in emergency situations
Lorenzo Bini Smaghi sums up the challenges and issues of having a European Systemic Risk Board. Anything to coordinate in Europe is so difficult. That is all the more why ECB is such a unique institution. To have a monetary policy for 16 countries is a mighty task. There are so many factors. That is also the reason why ECB should be evaluated differently. Plainly looking at efficiency of monetary policy will not work. It has too many constraints. One of the best constraint for ECB I read was this:
Otmar Issing: “Translation was, of course, linguistically always very good, but the same words and phrases may seem different against the background of different historical experiences. For example, one colleague once said to me, ‘Otmar, we have a paragraph containing three times a reference to price stability. I think this is too much for this argument. In my country, if you say three times why you seek price stability, it weakens your argument.’ And my argument was, if in Germany it’s only two times, they say, ‘Oh, is the ECB less stability oriented than the Bundesbank?’