EU regulators to call on King

BANK of England governor Mervyn King could be handed a powerful role with a new pan-European regulator, in an effort by the European Commission (EC) to bring the UK on board with the plans.<br /><br />The EC will today publish its blueprint for a revamp of European financial supervision, which is set to create four new agencies tasked with monitoring economic risks across the 27-nation European Union.<br /><br />One of the new bodies, the European Systemic Risk Board (ESRB), is likely to be headed up by European Central Bank (ECB) president Jean-Claude Trichet, but King could be installed as his deputy to allay British fears of having its voice drowned out in Brussels.<br /><br />Sharon Bowles, the Liberal Democrat MEP who chairs the European Parliament Economic and Monetary Affairs Committee, said King was the right man for the job.<br /><br />&ldquo;It would make a lot of sense for Mervyn King to have that post. The UK is important in terms of size and level of experience and the Bank has worked closely with the ECB,&rdquo; she said.<br /><br />The draft laws to be unveiled today will flesh out reforms agreed in June to introduce pan-European supervisors who will draw up a rulebook governing the behaviour of financial institutions.<br /><br />Alongside the new ESRB, which will consist of the representatives of national regulators, will be three watchdogs charged with overseeing banks, the securities sector and insurers.<br /><br />The final draft was still in the process of being drawn up last night, but will include a &ldquo;safeguard clause&rdquo; allowing member states to contest decisions with the council of ministers and ensuring that no decisions impacting on fiscal policy could be forced on a country.<br /><br />The clause is designed to allay worries in the UK and other countries that the European regulators would be able to force national counterparts to bail out institutions when they may not want to do so.<br /><br /><strong>PAN-EUROPEAN REGULATORS: THE PLANS</strong><br />&bull; The European Systemic Risk Board (ESRB) will sound its warning sirens if it sees emerging threats to the financial system, such as those that triggered the current crisis.<br /><br />&bull; It will be able to issue warnings, saying what should be done about risks in the financial system. It could order a country to take action, for example, and that country would be obliged to explain itself if it does not do so.<br /><br />&bull; The warnings will be weighty and those who receive them "cannot remain passive", says the draft. But the board will have no binding power in a legal sense, relying instead on political pressure for influence.<br /><br />&bull; The body would effectively be an arm of the European Central Bank (ECB), given that staff will mostly come from the ECB, which will also appoint the head of its secretariat.<br /><br />&bull; It will be managed by a so-called general board including the ECB president, governors of the region's central banks and a member of the EC.<br /><br />&bull; Its chair will be elected by EU central bankers. Many believe this makes the head of the ECB, Jean-Claude Trichet, the most likely person to take the post.<br /><br />&bull; Three new groups will watch banks, insurers and exchanges &ndash; the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority. They replace three advisory bodies.<br /><br />&bull; They will set the bar for supervision standards and establish uniform rules around Europe. Their rulebook will become European law.<br /><br />&bull;&nbsp; They can tell regulators to act, although there will be an appeal process.