Bank of England Governor Mervyn King could be given a prominent role in European Union super-watchdogs being set up to monitor banks and market risks to win British backing for the plan, diplomatic sources said.
The European Commission unveils its blueprint on Wednesday to shake up monitoring of financial services, creating pan-European watchdogs for banks and a separate body to spot early signs of a new financial crisis.
But backing from Britain — home to Europe's biggest financial centre, the City of London — will be crucial to plans to set up the new structures by the end of next year.
Britain is nervous because the laws will give more say to European institutions. They will let the Commission tighten its grip on an industry blamed for triggering the economic slump but one still vital for the British economy.
In particular, Britain has taken exception to the fact European Central Bank President Jean-Claude Trichet will head the European Systemic Risk Board, a body that will watch for financial risks.
But diplomats said London's blessing for the package of measures that includes a new super-watchdog for banks could be secured if European countries back King as the Frenchman's deputy.
"That could be one solution," said a diplomat involved in the negotiations.
"That is what Britain is pushing for," said another. "With the largest interest in all of this stuff, Britain feels the need to have quite a prominent voice on that body."
This is not the first time such a compromise has been aired. Last May, EU Monetary Affairs Commissioner Joaquin Almunia gave a strong hint that King could deputise for Trichet.
Almunia said at that time "it would be logical to appoint as vice-president of the (board) a governor of a non-euro area central bank and you know of whom we are thinking".
BREAKING THE MOULD
Overhauling the way Europe's banks and financial services are policed is central to legislation Brussels has drafted to prevent a recurrence of the financial crisis.
Spanning the curbing of banker bonuses to forcing lenders to make greater financial provisions for hard times, the laws also promise to break the mould of financial supervision in Europe.
The draft laws flesh out principles for reform agreed by EU leaders in June when Britain gave the nod to new pan-EU supervisors for markets, banks and insurers that have binding powers over European member states.
The rules need the approval of the 27 EU national governments and the European Parliament to take effect.
The risk board, which would be staffed by the European Central Bank and based in Frankfurt, is likely to have wide-ranging powers.
It will be able to issue warnings stating what should be done about risks in the financial system, although they would not be legally binding. It could order a country to take action, for example, and that country would be obliged to explain itself if it did not do so.
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