Brussels aims to reduce risk exposure by putting limits on bank loans to any one party and on loans repackaged as securities
The European Commission presented plans for tougher bank capital rules on Wednesday (1 October), in order to reduce risk exposure as a way to make the financial system stronger in the wake of the ongoing banking crisis.
Under the proposed measures, banks would be restricted in lending beyond a certain limit to one party, and 'colleges of supervisors' would be put in place for those banking groups that operate in several EU states.
Additionally, sellers of hazardous loans would have to maintain some of the risk by holding on to at least five percent of an investment when they sell loans repackaged as securities.
"These new rules will fundamentally strengthen the regulatory framework for EU banks and the financial system," EU internal market commissioner Charlie McCreevy said when presenting the plans.
MEPs have given mixed reactions to the new rules, however, with the Liberal grouping in the European Parliament welcoming a "timely commission proposal," while the conservatives have warned against "excessive regulation."
"The commission is right to propose Europe-wide measures to address the genuine concerns of Europe's citizens with respect to their savings and mortgages. This week's proposals address two of the key planks of the current crisis as individual national authorities struggle to contain the fall-out," stated Graham Watson, leader of the Liberals and Democrats in the European Parliament.
For his part, John Purvis, the UK Conservative vice-chair of the European Parliament's Economic and Monetary Affairs committee, said: "The EU should be taking action to ensure [the] systemic failures are never allowed to happen again, but excessive and intrusive regulation will only damage the smooth working of the financial system."
"Five percent retention is being billed as a panacea, but it could also make securities less attractive, potentially pushing up the cost of credit further still," he added.
The proposals unveiled by Mr McCreevy—which must yet be approved by EU member states—come ahead of related legislation on credit rating agencies, which the commissioner hopes to present no later than next month.