Not surprisingly the Head of the European Banking Authority, Andrea Enrina, has called to limit the discretion given to national central banks in their ability to set a buffer to the capital requirements. This severely impedes the ability of any one nation to protect its taxpayers form further bailouts, as a pan European capital requirement is likely to be not much higher than the Basel III requirement's, which may not be an adequate reflection for individual countries risk.
I say it is not a surprise because Enria is know to believe that in order for EU to progress there has to be more harmonisation towards a central European banking policy. During his first interview with the EU parliament back in February he reiterated his determination to produce a single 'rule book' for pan European banking regulations. Therefore curbing individual countries discretion in their home turf. He is also determined to bring a more top down approach to banking regulation within the EU. This announcement in London today is just a demonstration of this strategy.
The banks of Europe will take a sigh of relief today, since now they are reasonably assured that capital requirements will not be vary heavily from the Basel III requirements.
Talks of a 19% core tier one ratio for Swiss banks would have stirred the debate within other countries in Europe like Britain who are yet to formally agree on the enhanced figure. 10% is the figure the IBC has recommended in its report to which the chancellor has privately alluded his support.
Thus the public protest by the UK , Swiss and five other countries is not out of the blue. Mervyn King said in parliament this week that setting a maximum capital requirement severely restrict the individual countries ability to prepare for its individual financial stability.
Enria's defence of trying to avoid regulatory arbitrage within the EU is a fair defence, however, the real strategy is to harness the combined power of controlling a pan-european banking system.
In order to do this the EC has established several regulatory authorities amongst which is the ESRB or European Systemic Risk Board, which is responsible for the macro-prudential oversight of the financial system within the EU.
The ESRB will work along with the EBA in order to come to a capital requirement figure. Similarly, the European System of Financial Supervision (ESFS) will look to address the issue of integrated financial risks and vulnerabilities within the EU.
It is too soon to tell if these new regulatory authorities will have the ability to really make a change to the financial system of the Europe which is in dire need of reform.
European System of Financial Supervision (ESFS)
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