The ESRB will monitor and assess risks to the stability of the financial system and provide early warning of systemic risks that may be building up, with action recommendations where necessary.
It will also set up a European System of Financial Supervisors, composed of national supervisors and three new European Supervisory Authorities for the banking, securities and insurance and occupational pensions sectors.
The EC says the aim of the measures is to sustainably reinforce financial stability, ensure basic technical rules are applied and enforced consistently, identify risks in the system at an early stage and be able to act together in emergency situations and in resolving disagreements among supervisors.
European Commission president José Manuel Barroso says: “Financial markets are European and global, not only national. Their supervision must also be European and global.
“Today we are proposing a new European supervisory system, with the political backing of the member states and based on the de Larosière report. 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. This European system can also inspire a global one and we will argue for that in Pittsburgh.”
Internal Market and Services Commissioner Charlie McCreevy adds: “This package represents rapid and robust action by the Commission to remedy shortcomings in European financial supervision and will help prevent future financial crises. I commend this package to the council and parliament for rapid adoption, so that the new structures can begin functioning in 2010.”
City law firm CMS Cameron McKenna partner Paul Edmondson says: “Harmonisation and more powerful European authorities will only work if there is a transparent process for making policy and writing the rules.
“Currently European regulation involves too much fudge and compromise and not enough transparent consultation with objective market failure, impact and cost benefit analysis. Unless there is major change on this front, giving more power to Europe will be a disaster.”