The European Commission has come out with plans for a two-pillar supervisory structure for the European financial system, saying it wants to fast-track the proposal and have it up and running by 2010.
The new system, a direct result of the recent financial crises, will see the creation of three new European supervisory authorities which for the first time will have binding powers to police the banking, securities and insurance sectors, and an European Central Bank-led European Systemic Risk Council to issue early warnings and oversee developments on the macro level.
Unveiling these plans, Commission President José Manuel Barroso said that the ESRC will exercise a "moral" authority via a non-binding "act or explain" mechanism, requiring national supervisors to justify themselves if they fail to heed its recommendations.
In a new communication, the Commission set out what it called "achievable, realistic and ambitious" proposals, based largely on an earlier report by an expert group led by former International Monetary Fund managing director Jacques de Larosiere. Breaking with the Mr de Larosiere recommendations, Mr Barroso suggested the creation of a steering group to coordinate the work of the three micro level authorities, and especially to help in cross-border disputes.
If EU leaders approve the plan during their mid-yearly summit this month, the Commission will issue legislative proposals in early autumn.
Made up of 27 central bankers, representatives of the new EU-level authorities, the European Central Bank and the Commission, the ESRC will represent 60 organisations in total and meet quarterly, channelling its risk warnings through Ecofin or the ESAs. The three supervisory authorities, comprising 27 national regulators, are to meet more regularly, and will be given their own budgets, made up of EU and national money. They will have the power to refer member states to the Commission for non-compliance, and will have full supervisory control over credit rating agencies.
Mr Barroso said that the Commission will be trying fast-track these proposals, ditching Mr de Larosiere's plan to implement the changes in two phases, finishing in 2012.
EU leaders already gave an initial seal of approval to Mr de Larosière's ideas at the March European Council, but only time will tell what kind of text will emerge on the other side of further parliamentary and council talks.
Mr Barroso stressed that the ESA's will would only be imposed as a last resort, and was quick to dismiss suggestions that it would evolve into a pan-European regulator.
"We have national supervisors, and we will propose keeping the supervisors. They are the closest to the entities that they should supervise. It does not make sense to have a fully centralised body in Brussels or in Frankfurt," he said.
To counter possible eurozone bias, an issue which has already been flagged by the UK, the Commission will allow all 27 national supervisors to have observer status on the council while the vice-chair of the group should be from one of the 11 countries not currently using the euro.