European Union ministers agreed to create several new regulatory bodies, in order to try to prevent a future financial crisis, at a European Council meeting on September 7. Currently these organizations have few powers to overrule national governments, though some worry that this could change.

The European Systemic Risk Board, under European Central Bank President Jean-Claude Trichet, will monitor major economic trends to look for bubbles or major threats to the economy, such as problematic banks. The board will collect data from all major banks, insurance companies and markets.

It will not have the power to force EU nations to deal with any threats it sees, but it will make influential recommendations.

Three more watchdog groups will oversee the economy on more narrow terms: the European Banking Authority, based in London, the European Securities and Markets Authority in Paris and the European Insurance and Occupational Pensions Authority in Frankfurt.

These bodies will oversee their areas of authority on a broader level than EU nations’ own regulatory bodies. These national bodies oversee individual markets or companies on a day-to-day basis, while the EU watchdog groups will focus on creating common standards in regulation for all EU nations, and arbitrating in disputes between different national regulators.

The EU regulators, however, can take on more power if EU nations agree that they are in an “emergency” situation. They can then make legally-binding decisions that deal with individual banks or markets. But even then they cannot interfere with a nation’s fiscal (taxation and spending) policy—meaning they cannot force a nation to bail out any institutions.

The European Parliament is expected to approve these bodies later this month. They are scheduled to begin operating in January 2011.

EU finance ministers also discussed a bank tax to cover the cost of any future economic crisis, and also a tax on financial transactions. They failed to reach agreement on either of these issues.

The EU regulation put in place this week is not necessarily a major power grab by Europe. Yet neither is it designed to be. The Financial Times quotes one EU official saying that this regulation is only a “skeleton.”

“The flesh will come in further legislation,” he said.

Many in London worry that this legislation is just a start, and that more power will go to Brussels in subsequent legislation.

Barney Reynolds, a partner with Shearman & Sterling, said: “There’s an incessant drip of proposals with roles for the European Securities and Markets Authority in them.”

Behind Europe’s regulatory push is a desire to increase its grip on the finances of Europe, and especially London. For more information, see our article “Financial Regulation in Prophecy!”