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Negotiations between “the European Parliament, the EU government and the EU’s executive commission [are paving] the way for the new supervisory system” in banking. Four new EU regulatory agencies have been proposed, including a European Systemic Risk Board. Relatedly, the US has legislated for a systemic risk board and for additional powers to the Federal Reserve to regulate banks (and other firms deemed too big to fail).  In other words, the regulatory responses to the financial crisis of 2008 are happening on the US and EU levels. The EU allows for more active state government. For example, regarding the failure of a large bank in more than one state of the EU, the EU officials will have the power to step in if the relevant states are in disagreement. Presumably if each of the relevant state governments agree on how to deal with a given large bank, the EU regulators would not get involved. Herein lies an important distinction between the EU and US—the US Government getting involved even where relevant states agree. That is to say, there is a better balance of federalism in the EU.  That the new regulators are at the EU and US level means that they (i.e., the regulatory bodies) can be compared without needing to correct for them being at different levels.

Source: Europe’s 4-Regulator Solution, WSJ, September 3, 2010, p. C2.