The three new EU supervisors would be given binding powers over national regulators in seven different areas, and have the right to interpret, apply and even enforce provisions in over 20 separate directives. So this involves a clear shift in supervisory powers from the national level to the EU.
But putting the power shift aside, from a crude, national interest point of view, will this benefit the UK and the City of London? The short answer is, it could - but that assumes that the UK will stamp its mark on the new supervisory structure (for the long answer - read the full report).
Problem is that relative to its share of the EU's financial markets, the voting system within the supervisors is heavily biased against Britain - most decisions will be taken by a simple majority in the board of the supervisors (consisting of one representative from each member state), which will leave the UK in an unusually weak position to block proposals it disagrees with.
This graph is pretty illustrative:
Irrespective of the merits of the proposal, somehow we doubt that France would sign up to a supervisor with the power to, say, decide the level of farm subsidies by a simple majority vote or that Spain would agree to be part of an EU body which determined fishing quotas by simple majority (both the Multiannual Financial Framework which decides the distribution of farm subsidies, and the Common Fisheries Policy are protected by a veto).
There is a clear need to establish forums for regulators, central bankers and governments to exchange information. The supervisors can also play a useful role in mediating between national supervisors in cases where large cross-border retail banks expose depositors and taxpayers in several different countries to risks.
But the new supervisors will do much more than that - and could well extend their powers incrementally. Interestingly, following the agreement on Tuesday, objections to the new structure did not come from the UK, but from the Czech Republic.
According to the Prague Daily Monitor, Czech Finance Minister Miroslav Kalousek was not entirely happy about being left hanging by his British colleague at the EU meeting. "Great Britain shared our view until yesterday [Monday] and thus has offered an extraordinary show of pragmatism", he said, warning that the new EU supervisors could cause problems in future. He said,
"I have reason to fear that problems may occur sometime in five-six years. One of these [pan-European] agencies will make a wrong decision and will cause harm. This can lead to very complicated discussions about who will pay for it."We hope he's wrong.