European Union finance officials agreed to tighten oversight of banks and increase crisis cooperation, responding to nine months of credit-market disarray linked to subprime mortgages.
The finance ministers and central bankers signed an accord yesterday at Brdo, near Ljubljana, Slovenia, to create links among the supervisors of multinational financial companies and set guidelines for responding to market disruptions.
The plan, born from a 2006 crisis simulation that exposed confusion in a cross-border financial meltdown, gained urgency as subprime-related losses and writedowns mounted to more than $77 billion at EU banks, four of which have needed rescues.
``Decisive steps needed to be taken,'' Slovenian Finance Minister Andrej Bajuk said at a news conference after the signing. Regulators ``are obliged now to cooperate in normal times and in times of crisis.''
Charlie McCreevy, EU financial-services commissioner, said existing arrangements were inadequate to deal with a bailout such as at Northern Rock Plc of the U.K. or IKB Deutsche Industriebank AG of Germany, if the bank had major cross-border business.
UBS AG of Switzerland -- not an EU member -- has written off $38 billion, in the biggest hit sparked by an increase in defaults by lower-rated homebuyers in the U.S.
The new EU plan commits regulators to set up monitoring groups for big banks such as Deutsche Bank AG and insurers including Allianz SE. The accord also covers stock exchanges, which are reaching across borders with tie-ups such as London Stock Exchange Group Plc's acquisition of Borsa Italiana SpA last year.
Data Collection
``The idea is to collect data on significant, cross-border financial institutions that matter for the financial system,'' Joerg Asmussen, head of the German Finance Ministry's international finance department, said to reporters.
Finance ministers rejected binding rules on how to share bailout costs at a meeting in Oporto, Portugal, in September, while Northern Rock depositors were lining up outside branches in Britain's only bank run over the past 140 years.
Yesterday's memorandum of understanding advanced a 2005 agreement on exchange of information, by codifying principles on how to assess the need for, and carry out, responses to a crisis involving more than one market. Authorities must work together to minimize the economic fallout from any bank failures, rather than to prevent them, under the agreement. Governments should resort to bailouts only when the social costs of a failure outweigh the drain on public funds, and they should split the bill based on how each country is affected.
Shareholders shouldn't benefit, and management must be held accountable, the accord says.
Bank Supervision
Cooperation in day-to-day supervision of the EU's 40 or more cross-border banks will take place in colleges of regulators. The plan has been pushed by McCreevy, the EU commissioner and a former Irish finance minister, as well as the U.K.
Leaders at some of Europe's biggest financial companies backed supervisory colleges, to help centralize oversight of multinational banks that ``are vital for financial stability,'' the European Financial Services Round Table said in a letter to ministers before the meeting.
``Cross-border groups can only be supervised efficiently and effectively at consolidated group level, allowing an overall assessment of the true group situation and risk profile,'' said the letter signed by Round Table members Francisco Gonzalez, chairman of Banco Bilbao Vizcaya Argentaria SA, and Jean-Paul Votron, chief executive officer of Fortis.
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