LONDON (Reuters) - The European
Union will sign off on a slew of major reforms this week to allow
failing banks to be wound down without public money, clearing its desk
before elections in May that may lead to a slower pace of legislation.
This week is the final plenary session of the European Parliament before it breaks up ahead of the vote in May.
The
welter of rules the bloc has approved since the worst financial crisis
in a generation began unfolding from a corner of the U.S. housing market
in 2007 is fundamentally reshaping the banking and securities industry.
The
rule changes also strengthen the bloc's grip on capital markets at the
expense of national governments to an extent few federalists would have
dared to dream of, as policymakers want to avoid more taxpayer bailouts
of banks and euro zone countries.
From November, the European
Central Bank will directly supervise top lenders in the single currency
area, adding to three new EU regulators for banks, insurers and markets
launched in 2011 with binding powers over member states.
"There
is no question that the regulatory tidal wave and centralization have
been triggered by the crisis," said Nicolas Veron, EU policy specialist
at Brussels think tank Bruegel.
"After this week, I think a pause
is unlikely but a deceleration would be good. There will be a lot of
legislative activity, but I am not sure it will be as frantic as it was
in the last five years," Veron said.
On Tuesday the European
Parliament will approve two major reforms to make it easier and quicker
to close failing banks so they don't collapse messily or require
taxpayer money.
It will also rubber-stamp a sweeping reform of
securities markets that will draw commodities under the regulatory net
for the first time, and crack down on high frequency trading, a type of
ultra fast computerized trading the FBI is probing.
It is the assembly's last plenary session before it goes into recess as lawmakers campaign ahead of elections in May.
The
new parliament won't be fully up and running until September, and even
then will focus on the appointment of a new European Commission, the
bloc's executive body that helps set and steer the EU agenda.
It
involves lengthy horse-trading among governments for top jobs like
financial services commissioner, who has sole power to propose
regulation, which incumbent Michel Barnier used fully to the dismay of
Britain's City of London banking district.
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The
new commission takes up the reins in November, if all goes to plan -
and last time it was several months late - meaning the tempo of
rulemaking may slow down until early 2015.
Scrutiny of key
legislation that failed to make it across the finishing line before the
May elections will then resume, including some of the most controversial
items Barnier proposed.
Reform of money market funds, a law to
regulate benchmarks - after banks were fined for rigging Libor interest
rates - and plans to change the structure of lenders to curb risks from
trading are at the top of the in-tray.
After May, banking lobbies
will assess which of the new range of lawmakers to target, as some
polls predict gains for anti-Europe parties, while some well-known
members will stand down.
Parliament has joint say with member
states on financial rulemaking and has been more aggressive in pushing
through stricter rules, such as the cap on bankers' bonuses.
"In
some ways parliament will write the script for the regulatory
framework," said Graham Bishop, a former banker who advises EU
institutions on regulation.
Barnier has been able to use the
crisis to justify going further than reform pledges agreed at the global
level, such as on auditing, hedge funds, bank bonuses and credit rating
agencies.
The focus of the new parliament and commission will be
on boosting growth with several people already warning that giving
banks too much of a hard time now that the crisis is largely over will
crimp their ability to lend.
Pradeep shukla
PGDM 2 sem
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