A gathering of top-flight bankers, politicians and academics have criticised the current EU rules regulating the banking industry as being inadequate.
"Self-regulation alone is not sufficient in order to guarantee global financial market stability," said the German state secretary for finance, Jorg Asmussen at the Annual European Services Conference held in Brussels on Tuesday (27 January).
Instead, he said banks should be forced to increase capital requirements—"the shock absorbers for the whole system."
Defending his record, Internal Market Commissioner Charlie McCreevy, whose job it is to propose legislation in the area, said previous reform initiatives had consistently been thwarted.
"Any time that proposals have been put forward over the last few years, the consensus breaks down," he said.
The increasing gap between the size and complexity of the financial sector and its regulation was a cause for concern he said, and the reason why the commission had called for the setting up of a high level expert group to come up with proposals.
The group, chaired by former governor of the Bank of France, Jacques de Larosiere, is due to present its findings to the commission at the end of next month.
"I look forward to the Larosiere group putting forward concrete proposals," said Mr McCreevy.
But Dutch Social Democrat MEP Leke van den Burg, a member of the European Parliament's Committee on Economic and Monetary Affairs, criticised the commissioner.
"This is what we would have liked to hear when the commissioner started his mandate," she said, referring to the current reform initiatives.
"He says that the commission took the initiative for legislation during his mandate when it has in fact it has been the European Parliament that took the initiative," she continued.
At the heart of the debate are the Basel Accords (I&II), a set of international standards produced by the Basel Committee on Banking Supervision to help regulators around the world harmonize policy.
Under the recommendations, banks must maintain capital reserves that are proportional to the risk of investments and loans.
Published in June 2004, Basel II compels banks to carry capital reserves of at least 8 per cent of the value of their risk weighted assets.
Alberto Giovannini, CEO of independent asset manager Unifortune, says this position is ludicrous.
"This allows banks to have a leverage of 12.5 times [their capital holding]. Sounds like a very big number to me," he said.
Basel II is translated into EU law under the Capital Requirements Directive, which is currently under review following the publication of a commission reform proposal last year.
Speaking at the conference, deputy minister of finance for Czech Republic, Klara Hajkova, said that agreement on a reform of the Capital Requirement Directive was a top priority for the Czech presidency of EU.
"If we can deliver on these files we can send a strong message to the world," she said.