By Reed V. Landberg
March 4 (Bloomberg) -- Britain’s Chancellor of the Exchequer Alistair Darling said the European Union needs a single financial regulator to draw up rules governing banks and insurance companies and to prevent turmoil in markets.
“We need much greater cooperation,” Darling wrote in a letter to EU finance ministers. “We should consider fundamental reforms to the system of regulation and supervision. We should not shy away from radical options.”
The comments are aimed at finding a common EU position on how to rework banking rules before Prime Minister Gordon Brown hosts a summit of leaders from the Group of 20 nations in London next month.
Darling’s proposal mostly endorses an EU plan scheduled to be released today that would give new agencies the authority to monitor economic risks and set standards for national bank regulators. The U.K. proposal suggests the authority should be held by a new regulator and not the European Commission, the administrative arm of the EU.
“Over time, this body should become the source of technical financial rules rather than national authorities or the commission,” Darling wrote. “It would not supervise individual banks, insurers or investment firms, leaving that to national authorities. It would not have powers over national supervisors.”
Resistance Dropped
Britain has dropped its resistance to a single regional regulator following the collapse of Lehman Brothers Holdings Inc. in September. With the failure of that U.S. investment bank, the world economy lurched into recession, and credit markets, which had begun to recover from the meltdown in the subprime mortgage market in 2007, froze up again.
Brown yesterday pressed U.S. President Barack Obama to support global financial regulations, saying that worldwide money flows mean the rules that restrain the industry have to cross national borders.
“We’ve had a global banking failure,” Brown said at a news conference with Obama in Washington. “We’ve got to rebuild the system. A bad bank anywhere can affect good banks everywhere.”
The EU proposal, drawn up following advice from a panel led by Jacque de Larosiere, envisages the European Commission retaining the power to write rules implemented by national regulators. Darling suggests a new body replacing the role of the commission. Former FSA Chairman Callum McCarthy served on Larosiere’s panel.
National Powers
Under the Darling plan, national banking regulators including the Financial Services Authority in the U.K. would keep the power to oversee banks in their home countries, implementing rules and guidelines agreed to by the new pan-European regulator.
British officials also are continuing to press their case for an “early-warning system” that would diagnose threats to the world economy, working with the International Monetary Fund and the Basel-based Financial Stability Forum.
In addition, Darling wants a review of cross-border banking supervision, addressing how national regulators oversee a branch of an overseas bank working in their country. Those concerns stem from a $1.3 billion bailout Darling granted to Icelandic banks after customers of Reykjavik-based banks in the U.K. lost money last year.
“We need to be clear about what is and should be dealt with supra-nationally and what needs to be dealt with on a national basis,” Darling wrote. “We all recognize the problems that can arise in one country and very quickly affect others.”
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To contact the reporter on this story: Reed Landberg in London at landberg@bloomberg.net.
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