European officials are rubbing their eyes in disbelief as the British prime minister basks in international admiration as the savior of the global banking system and an apostle of cross-border financial supervision. Is this the same man who in 10 years as finance minister resisted almost every effort at European Union level or in the Group of Seven major economies to push for stronger financial regulation? Can this be the leader whose government is still fighting to kill a requirement proposed by the European Commission for banks to hold a 5 percent slice of risky securitised loans they sell? In unusually frank comments, Commission President Jose Manuel Barroso told the think-tank Friends of Europe this month that “the most relevant member states in economic and financial dimension” had warned the EU executive not to propose stronger European banking supervision rules. He did not mention Britain by name, but EU officials said it was an open secret that Brown had consistently blocked any European legislation he thought might inhibit the attractiveness of the City of London as a financial centre. Since Britain's vaunted “light-touch regulation” – of which he was an architect – turned out to have been soft-touch regulation, the prime minister's tone has changed somewhat. The global credit crunch has prompted him to use hundreds of billions of pounds of taxpayers' money to take stakes in troubled banks, underwrite inter-bank lending and ensure liquidity in the money markets. That bold stroke reversed three decades of deregulation, championed by former Prime Minister Margaret Thatcher, which the Labour Party embraced to regain power in 1997. Announcing his programme for a “Bretton Woods II” to strengthen the global financial system, Brown called for “effective cross-border supervision of global firms, including through international colleges of supervisors”. At least 30 multinational companies should be under the supervision of such colleges by the end of this year, he said. Yet Barroso recalled that “major member states” had until very recently put up huge resistance to the idea of a college of supervisors. Accounting experts wonder how much say Brown is really prepared to give supervisors from, say, China or even the United States, in regulating the activities of Bank of China's or Morgan Stanley's London subsidiaries. The new Brown says all parties with a significant financial impact must now be appropriately regulated and supervised, but he does not say which sectors this should cover. Irish EU Internal Market Commissioner Charlie McCreevy, seen as close to the British hands-off approach, still brushes aside calls from EU lawmakers for regulation of hedge funds, mortgage lenders and private equity companies. German Finance Minister Peer Steinbrueck remembers how, when Germany chaired the Group of Seven industrialised nations last year, Brown led opposition to his push for even a voluntary code of conduct for hedge funds. Brown now calls for action to “close international gaps in the supervision of the emerging shadow banking system”. Yet the shadow banking system of off-balance-sheet vehicles with what are now known as toxic assets was an integral part of the system he shielded from more intrusive EU regulation, including offshore financial centres in the Channel Islands and the Isle of Man. Even now, the British leader is bolder in his description of what needs to be done than he is in the measures he proposes. The two institutions he would put at the centre of the new financial architecture are the International Monetary Fund (IMF) and the Financial Stability Forum (FSF), neither of which has any binding regulatory powers. In Brown's world view, only two levels seem to matter, the national and the global. His blueprint largely cuts out the European Union, which does have legally binding authority, as a regulator. While he says it is urgent to address the underlying problems behind the credit crisis, Brown cites a 2002 reform of US corporate governance after the Enron scandal as an example of rushed, knee-jerk regulation to be avoided. “We are not going to take the over-hasty action that has happened in other cases such as Sarbanes-Oxley in the United States of America after Enron and other cases,” he said. – Reuters __
