In a session on EU micro and macro prudential regulations held by the Treasury select committee this morning, deputy chairman Michael Fallon asked if the draft regulations on the establishment of a European Systemic Risk Board would have the legal power to force the UK to take such actions.
Centre for Financial Analysis and Policy director of research at Cambridge University Dr Kern Alexander said: “Right now there is no legal requirement that a state bail out a bank because of a decision made by the European Systemic Risk Board, there’s no legal obligation to do that in the current proposal, if we’re in a crisis for instance. That would have to be a decision made at Ecofin and the Council of Ministers. That is a finance ministry decision. So I just don’t share that concern.”
But Fallon said: “Article 23 doesn’t say that. It says that the Council considers an appeal from a member state and can uphold the authority’s original decision.”
London Business School professor of economics and Centre for Economic Policy Research president Richard Portes said: “Not on fiscal obligations. I’m sorry Mr Fallon but I don’t agree. I certainly don’t read it that way.”
Fallon responded: “Have you read article 23? It seems pretty clear to me that a member state can appeal and then the Council acts by qualified majority as to whether to uphold the appeal or not. Is that not the position?”
Portes said: “We are not here talking, in that article to which you refer, about the power to impose a fiscal responsibility on a member state.”
Alexander said: “I agree it should be clarified.”
However, expert witnesses from Clifford Chance agreed with Fallon that effectively the FSA could be overruled by EU regulation and said that this had already happened on one occasion.