EU unveils blueprint to overhaul policing of banks

The European Union unveiled its blueprint for an overhaul of the way banks and financial markets are policed, a central plank in new rules designed to prevent a repeat of the global economic crisis.

It plans to create a banking super-watchdog, with power to overrule countries such as Britain, and a pan-European supervisor that would warn of early signs of crisis.

Our aim is to protect European taxpayers from a repeat of the dark days of autumn 2008, when governments had to pour billions of euros into the banks, European Commission President Jose Manuel Barroso said in a statement on Wednesday.

The European system can also inspire a global one and we will argue for that in Pittsburgh, he added, referring to the meeting of large G20 nations later this week.

The laws, which also include the creation of a separate supervisor for insurers and markets, are set to give more say than ever to European institutions as Brussels tightens its grip on an industry blamed by many for triggering the economic slump.

The blueprint, which was been broadly agreed on by EU leaders earlier this year, could erode the authority of Britain, which is fighting to keep control over the centerpiece of its economy, the City of London.

Paul Myners, Britain's Financial Services Secretary to the Treasury, signaled that the new watchdogs should not be given more power than was foreseen in June, when Britain and other EU countries agreed to establish the new supervisors.

There is widespread skepticism in Britain about the raft of fresh financial rules that many there see as a German-Franco bid to undermine the City of London.

There is a narrowing of differences between the UK and EU positions on the point of supervision and regulation, said Simon Tilford, chief economist with think-tank the Center for European Reform.

Nonetheless, the UK's concern about the competitiveness of the City is legitimate. And we need to be sure that the new regulations, such as on supervision, are not motivated by a political desire to undermine the City's position.

BREAK-THROUGH

Economic and Monetary Affairs Commissioner Joaquin Almunia hailed the new system as a major breakthrough. The law puts Europe ahead of the United States, which is still bogged down in a dispute with lawmakers as to whether it should give similar watchdog powers to the Federal Reserve.

Almunia said the new European Systemic Risk Board would spot risks that had previously been ignored, such as the rapid rise in borrowing in foreign currencies that happened in the run-up to the financial crisis.

Charlie McCreevy, the EU's internal market commissioner, called on the European parliament and national governments to act fast so that the new watchdogs would be in place by this time next year.

Overhauling the way Europe's banks and financial services are policed is part of a raft of laws ranging from the curbing of banker bonuses to forcing lenders to make greater financial provisions for hard times.

Backing from Britain -- home to Europe's biggest financial center, the City of London -- will be crucial to plans to set up the new structures by the end of next year.

Britain is nervous because the laws will give more say to European institutions. The risk board, for example, which would be staffed by the European Central Bank and based in the German city of Frankfurt, is likely to have wide-ranging powers.

It will be able to issue warnings, instructing countries on how to tackle risks to the financial system.

Diplomatic sources said Bank of England Governor Mervyn King could be given a prominent role in the new system to win British backing for the plan.