One single bank supervisor will report directly to the European Central Bank in order to police the largest and most influential banks in the EU, in the wake of the Libor scandal that rocked UK financial services.
There are also plans to outlaw any deliberate manipulation of interest rates, and a review into how Libor indicia have been set in the past.
When outlining the initial details of discussion, officials announced talks where ongoing into creating one entity charged with sole supervision of the region’s top 25 largest banks. The eurozone supervisor would be based in Brussels, and national market regulators would also be bought under its control.
Germany has already announced their support for the proposals and said it was “an essential condition” before they could entertain thoughts of managing resources with other eurozone countries.
EU commissioner Michel Barnier also will restructure guidelines to financial services so any “loopholes” will close and those who deliberately interfere with market indices like the Libor and Euribor will face criminal action.
A spokesman for Barnier said “lessons needed to be drawn” from the Libor case.
European Commission President Jose Manuel Barroso said unsustainable fiscal policy in the EU must be corrected. “In a more integrated economic and monetary union, sound fiscal positions will not be optional,” he said. “They will be non-negotiable. We propose to look at further steps that may require changes to the EU treaty.
“Let me tell you here that fiscal union is about much more than just Eurobonds or stability bonds. It also means more coordination in taxation policy and a much stronger European approach to budgetary matters at national and European level.”
The incident has had a knock-on effect to the US and Asian-pacific markets. Several authorities in Japan, Canada and the US are investigating a number of large banks over suspected manipulation of the rates, and will take their cue from regulator Martin Wheatley who is due to finish his examinations in autumn, in time for a recommendations reform bill to be passed through UK parliament.
Democratic US Congressman Barney Frank has demanded hearings in Washington to “call the whole structure of Libor into account,” but some analysts are wondering why the scandal has been able to go on for so long.
BBC Economics editor Stephanie Flanders said: “Perhaps we should also be asking why those senior officials and regulators continued to allow Libor to play such an iconic role in global financial contracts – when even the governor of the Bank of England knew quite well that they did not paint a remotely accurate picture of reality. Even when everyone was playing by the rules.”
