EU watchdog to prevent repeat of banking crisis

A NEW watchdog system to identify and give early warnings of banking problems across the EU has been unveiled by the European Commission.

Designed to prevent a repeat of the banking crisis that hit the global economy last autumn, the Commission hopes it will be in place and operating by 2011.

The current system is weak because it is fragmented along national lines with nobody having an overview of exactly how a financial institution is doing throughout the EU.

To remedy this, a European Systemic Risk Board would monitor and assess risks to the stability of the financial system as a whole, providing early warnings of trouble and recommend action.

Individual financial institutions would be under the microscope of a European System of Financial Supervisors, made up of a network of national supervisors. This would include experts in banking securities and insurance and occupational pensions sectors.

In addition, there will be a European Banking Authority, a European Insurance and Occupational Pensions Authority and a European Securities and Markets Authority and they will take over the existing financial services committees that have only advisory powers.

The Government welcomed the proposals and said they were very important in rebuilding confidence. The Government is currently reforming national structures for regulating financial services with the creation of a single integrated Central Bank of Ireland.

The EU is first to produce its blueprint which the G20 pressed on all states last year. It will be discussed at the G20 in Pittsburgh today and the EU hopes its proposals will form the basis for a global scheme to regulate the financial world.

But the plan has faced British opposition as it fears other countries could make decisions that disadvantage London. Internal market commissioner Charlie McCreevy said not all members might be happy with the proposal but it was now up to the council, representing them, to work through it.

Governor of the Bank of England Mervyn King, is mooted as deputy of the new Systemic Risk Board that will track the stability of banks in the EU. It is to be chaired by the head of the ECB, Frenchman Jean-Claude Trichet.