European Union leaders set a June deadline to map out a new financial supervisory system, pledging tougher oversight on banks and hedge funds as the economic crisis deepens.
The 27-nation bloc “will take first decisions to strengthen EU financial-sector regulation and supervision” at the next leaders’ meeting in June, the heads of government said in a communique after a summit in Brussels today. The overhaul will be based on a proposal to create EU agencies overseeing economic risks and harmonizing supervision of banks and insurers.
The EU is seeking to use a meeting with President Barack Obama at the Group of 20 summit in London next month to shift the focus from economic pump-priming measures to overhauling financial regulation.
The June deadline “is the message you have to give the G- 20 from our side,” Karel Lannoo, chief executive officer of the Centre for European Policy Studies in Brussels, said in an interview. “We’re putting the house in order.”
The EU said it will call on the G-20 to step up vigilance against risks building up at financial companies, and cover regulatory gaps for investment vehicles including hedge funds and private-equity buyout firms. Banks should build up capital during economic expansions, providing a cushion during slowdowns.
“There is a unified European view that we want very strongly to move forward on regulation at the G-20 summit,” German Chancellor Angela Merkel said to reporters in Brussels.
‘Race to Regulation’
“It’s a race to regulation,” Lannoo said. Leaders “have to show the public that they’ve learned their lesson.”
The EU will have to resolve divisions within Europe over the scope of new regulations and over how much authority to hand to central EU institutions such as the European Central Bank, which sets monetary policy for 16 of the EU’s 27 countries.
The text called proposals by an advisory group led by Jacques de Larosiere, a former head of the Bank of France and International Monetary Fund, “the basis for action.”
The de Larosiere group on Feb. 25 proposed new agencies to coordinate oversight of financial companies, and urged the setup of a committee housed at the ECB to watch over economic risks. The EU’s executive arm, the European Commission, has said it will base its formal proposal on the panel’s report.
The EU further called for adoption by mid-May of pending proposals on credit-rating companies, the solvency of insurers, bank capital requirements and cross-border payments and electronic money.
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