As the world’s economic near-chaos has continued despite American attempts to rescue its troubled financial institutions, the European Union has called for tighter regulations on bank security and supervision to keep depositor confidence and prevent US-style bail-outs. “We have just approved a proposal for reform of the capital requirements of financial companies ... This important and far-reaching proposal will be followed very quickly by a proposal on reforming the rules on rating agencies,” European Commission President Jose Manuel Barroso told journalists in Brussels.
The Commission said it wants Europe to strengthen the European supervision of multinational banks, rewrite the rules on evaluating complex assets such as securities backed by high-risk mortgages, and harmonise national deposit-guarantee schemes, Barroso said. “We have to draw the lessons of this situation to see what we can do to have a real European response for those matters ... This is the only way to make sure stability and confidence return,” he said. Barroso made his speech just after the commission approved the British government’s nationalisation and sale of battered mortgage lender Bradford & Bingley and launched a probe into German state support for the WestLB bank. He spoke just before EU Internal Market Commissioner Charlie McCreevy was set to unveil the details of the capital-requirements reform.
Officials said that McCreevy was to demand that banks which sell high-risk debts, such as mortgages, as assets should keep at least five percent of those assets on their own books. He was also expected to call on banks to set aside a proportion of their capital as a safety net against the collapse of other banks with which they have financial ties. Groups of international supervisors should also be set up to oversee multi-national banks such as the Dutch-Belgian giant Fortis, which the governments of Belgium, the Netherlands and Luxembourg partly nationalised to stave off its collapse. The supervisors would be drawn from the regulator of each EU state where the bank operates and would also be tasked with working out a quick solution if it runs into serious difficulties.