(BRUSSELS) MNI – The European Commission today presented a proposal
for new banking regulations that aim to raise capital requirements and
enhance risk management at the EU’s 8,000 banks.
The new legislation will require European banks, which have over
half the world’s assets, to hold more and higher quality capital, and it
introduces new rules on liquidity and leverage, in line with the
internationally agreed Basel III guidelines.
Essentially translating the Basel III rules into EU law, the
commission’s proposal requires banks across the EU to hold additional
capital in the form of “capital conservation buffers” and to set aside
capital in good economic times to buffer against the bad times.
While the new capital rules are in line with Basel III, which
requires banks to hold 4.5 percent of their capital in the form of
“common equity tier one” capital, the European Commission’s proposal
does make some minor adjustments. For example, it recognises as equal to
common equity tier one capital certain forms of country-specific
regulatory capital instruments which meet the criteria set out in Basel
In addition to the capital rules, the commission has also proposed
tougher non-compliance fines of up to 10% of an institution’s annual
turnover and temporary suspensions for bank managers.
The Commission is also proposing measures to enhance the power of
banks’ risk management departments.
In addition, it takes aim at credit rating agencies, which it
believes have exacerbated the financial crisis. Under the proposal,
banks will be required to reduce their dependence on external credit
rating providers and develop their own internal rating methodologies.
In line with work it is doing elsewhere to reduce counterparty
credit risk, the Commission’s proposal today includes measures to
encourage banks to clear over-the-counter derivatives trades through
central clearing houses.
“We cannot let such a crisis occur again and we cannot allow the
actions of a few in the financial world to jeopardize our prosperity,”
said EU internal market commissioner Michel Barnier. “The banking sector
will have to hold more capital and better quality capital every time it
is taking risks. It is a tremendously important step forward in learning
the lessons from the crisis and adopting a new approach to risk,” he
EU member states and Member of Parliament will discuss the proposal
before it can become law, and they may propose changes to it.
Some countries, including the UK, have already voiced opposition to
the Commission’s proposal because it would prevent individual countries
from setting higher standards.
The new rules are seen by the Commission as part of its broad
integrated approach to tackling and preventing financial crises.
According to the Commission, EU governments spent more than E2
trillion euros supporting financial institutions in 2008 and 2009.