The EU Financial Supervision in the Aftermath of the 2008 Crisis: An Appraisal

We appraise the new EU supervisory architecture presented by the Commission in a package of five ‘draft legislative acts’. Two would establish a European Systemic Risk Board (ESRB) to undertake macro-prudential issues. Three would establish the system of European Supervisory Authorities (ESAs): Banking, Securities and Insurance. The theoretical case for this package of draft legislative acts has been made by the High-Level Group on Financial Supervision in the EU. The package has been examined by the ECOFIN of 2 December 2009, which has introduced changes to the Commission's three draft legislative acts concerning the ESAs. We examine the theoretical approach underlying the draft legislative acts, which is based on the State theory of money. We find it incomplete in the case of the ESRB because the mission of ECB in 'mitigating system risks within the financial system' cannot be attained without real powers and tools; it is in essence a macro-economic phenomenon. We also arrive at another conclusion relating to the three proposals on the ESAs. The theoretical underpinning of the three is based on the premise of the school of regulation. Today's evolution of the EU cannot allow ESAs to go beyond their Treaty competence. Nor could the ESAs attain their objective of 'setting the common rules for supervising national entities'. Thus, the conception of the EU system of financial supervision is deficient, in need of repair. We propose an alternative approach to the new EU supervisory architecture consisting of three elements. First, we restate the case for the Central Banks to assume responsibility for the ‘last resort of managing risk', and be endowed with real power. Second, the role of the national central banks in ‘micro-supervision’ should be enhanced; amongst other things, credit rating should be their responsibility. Third, a structure for the budgetary burden is proposed by the establishment of the ‘European Fund for Financial Stability’ endowed with its own capital resource