EU leaders have agreed to set up new pan-European financial watchdogs after limiting their authority in order to ease Britain's concerns about yielding some of its powers.
Joining the US in a drive to tighten financial supervision, the leaders formally threw their support behind plans to set up three pan-European bodies to oversee banks, insurers and securities firms.
Agreement on Irish Lisbon concerns
London, one of the biggest financial markets in the world, had been wary that the new authorities would be able to order governments to make emergency spending to prop up the financial system by, for example, bailing out banks.
In order to appease Britain, the leaders agreed that the new authorities' powers would stop short of taking any decisions that could cost European taxpayers.
'I have ensured that British taxpayers are fully protected,' British Prime Minister Gordon Brown told journalists, stressing he had highlighted 'the importance of the City of London, the most important financial market in Europe'.
Still, EU leaders agreed that the new bodies should otherwise have 'binding and proportionate decision-making powers' to ensure that national regulators are in line with EU rules, according to conclusions from summit.
Looking to ease another British concern, they also decided that EU central bankers would chose the head of new European Systemic Risk Board, which is supposed to monitor risks to financial and economic stability and issue recommendations to avoid them.
Britain, the biggest of the 11 EU countries not to use the euro, had also been put off by an original proposal that the new risk watchdog be chaired by the European Central Bank.
In the next step, it will be up to the European Commission to hammer out the details of the reform in a new set of legal proposals due in early autumn, with the aim of implementing them next year.
While proposals to consolidate financial sector regulation in EU bodies have been around for years, governments started taking them seriously only after the crisis late last year exposed the limits of overseeing big cross-border banks with multiple national regulators.
The EU move comes days after US President Barack Obama proposed what was billed as the most sweeping regulatory overhaul since the 1930s, aiming to stop future meltdowns and purge the finance system of lax oversight, greed and huge debts.
As EU leaders focused on reforming financial sector supervision, concerns are also growing that more needs to be done to tackle massive losses still lurking on the balance sheets of European banks but not yet recognised.
The European Central Bank warned on Monday that euro zone banks might have to take another €204 billion in writedowns by the end of 2010, mainly to cover risky loans. 'Governments must ... stay alert to possible further measures which may be needed to recapitalise or to clean up balance sheets,' EU leaders said in the conclusions from the summit.
