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Europe Tackles Systemic Risk

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The European Commission wants to create a new financial stability monitor but continue to put separate bodies in charge of efforts to oversee individual banking, insurance and securities businesses.

The European Commission, a body that serves as the executive branch for the European Union, wants to create a new European Systemic Risk Council to assess “risks to the stability of the financial system as a whole,” officials say in a release describing the proposal.

The European Commission calls systemic oversight as “macro-prudential supervision.”

“The ESRC will provide early warning of systemic risks that may be building up and, where necessary, recommendations for action to deal with these risks,” officials say.

To handle ordinary regulation of individual financial services companies, or “micro-prudential supervision,” the European Commission wants to create three new “authorities” – the European Insurance and Occupational Pension Authority, the European Banking Authority, and the European Securities Authority.

The EIOPA, the EBA and the ESA would replace the existing Committee of European Insurance and Occupational Pension Supervisors, the Committee of European Banking Supervisors, and the Committee of European Securities Regulators.

The new EIOPA would have its main offices in Frankfurt am Main, the location of the main offices of the CEIOPS.

The new authorities “would not adopt rules themselves,” officials write in a collection of answers to “frequently asked questions” about the proposal. “However, they will play an important role in bringing about a common rulebook. They will be able to develop technical standards, which will be binding unless the Commission opposes them, and they will draw up interpretive guidelines to assist the national authorities in taking individual decisions.”

European Commissions note that they also considered putting a single authority in charge of overseeing all financial services sectors, or dividing responsibilities by objective, with one body in charge of “prudential supervision,” or solvency supervision, and one in charge of “conduct of business” supervision.

European Commission officials decided that the regulatory duties could be divided differently than in member countries, because the EU-level bodies will not be carrying out the same tasks as national supervisors.

Commission officials did not find conclusive evidence that one approach was better than the others, officials write.

In an impact assessment, European Commissions note that, “Contributions from insurance associations all oppose merging banking and insurance into one supervisory body.”

Although some large companies have been engaging in both banking and insurance activities, some now appear to be turning away from that approach, officials write.

Comments on the proposal are due July 15.


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