15th Apr 2024

Brussels puts forward stricter rules for banks

  • New rules in the financial sector are supposed to prevent crisis "lightning striking twice" (Photo: Wikipedia)

Banks in the European Union will have to restrict their investment in risky operations under new rules proposed by Brussels as part of a response to the current financial crisis.

"We are acting ambitiously to prevent lightning striking twice," said Jose Manuel Barroso, the president of the European Commission, the EU's main regulator introducing the new legislation on Monday (13 July).

Read and decide

Join EUobserver today

Get the EU news that really matters

Instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

The blueprint aims to revise the bloc's existing rules on capital requirements for banks in two key areas – securitisation and remuneration, viewed by experts as the key factors contributing to the crisis in the financial sector.

Both are linked with risk taking in the financial sector: securitisation involves pooling and repackaging of cash-flow-producing financial assets into "securities" then sold to investors that could worsen or lose their credit if the transaction is improperly structured.

Banks' remuneration policies can motivate their managers to seek short-term profits in risky areas such as securities which could lead to further problems.

But under the proposed new EU rules, the risk-taking would be more costly and more strictly supervised: banks will be restricted in their investments in highly complex re-securitisations if they cannot demonstrate that they have fully understood the risks involved.

The new rules will also tighten up disclosure requirements to increase the market confidence that is necessary to encourage banks to start lending to each other again, and "roughly double" their current trading book capital requirements.

On top of that, national supervisors will be asked to review banks' payment regulations and impose sanctions if they do not follow the newly agreed principles – if and when the Brussels' bill gets adopted by the European Parliament and national governments.

"The requirements on pay and bonuses are designed to put an end to the culture of excessive risk-taking for short-term success at the expense of long-term profitability and sound risk management," said EU internal market commissioner Charlie McCreevy.

"This package of amendments will strengthen the risk management, transparency and sound investment practices that are key to a healthy and stable banking system," he added.

The EU executive filed its proposal on the same day as the so-called Basel Committee on Banking Supervision announced it had adopted its final draft on global reform of the financial sector which will also demand banks to hold more capital against re-securitised products, according to the Financial Times.

However, the full details of the world's banking reform to be adopted by the key global powers will only be published later this year.

The Basel Committee on Banking Supervision is an institution created in 1974 by the central bank Governors of a group of ten nations - Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the US.

Resist backlash on deforestation law, green groups tell EU

European environmental groups have urged the EU Commission to stand firm on implementing the bloc's landmark anti-deforestation legislation — despite a backlash from governments in South America, Africa and some EU ministers.


'A race to the bottom': How the CAP green ambitions unravelled

The EU's easing of green agricultural policy conditions as a response to farmers' protests has sparked controversy. Critics fear that short-term quick fixes are not a solution for the sector, while others cite a CAP-Green Deal gap.


This 'deregulation' lobbying now threatens EU economy

Next week's EU summit (17-18 April) will discuss the strategic agenda for the next five years. The current "competitiveness agenda" is to a large extent driven by a big lobbying campaign — so far, not well covered by the media.

Latest News

  1. How German police pulled the plug on a Gaza conference
  2. EU special summit, MEPs prep work, social agenda This WEEK
  3. EU leaders condemn Iran, urge Israeli restraint
  4. UK-EU deal on Gibraltar only 'weeks away'
  5. Belgium declares war on MEPs who took Russian 'cash'
  6. Brussels Dispatches: Foreign interference in the spotlight
  7. Calling time on Amazon's monopolism and exploitation
  8. Resist backlash on deforestation law, green groups tell EU

Stakeholders' Highlights

  1. Nordic Council of MinistersJoin the Nordic Food Systems Takeover at COP28
  2. Nordic Council of MinistersHow women and men are affected differently by climate policy
  3. Nordic Council of MinistersArtist Jessie Kleemann at Nordic pavilion during UN climate summit COP28
  4. Nordic Council of MinistersCOP28: Gathering Nordic and global experts to put food and health on the agenda
  5. Friedrich Naumann FoundationPoems of Liberty – Call for Submission “Human Rights in Inhume War”: 250€ honorary fee for selected poems
  6. World BankWorld Bank report: How to create a future where the rewards of technology benefit all levels of society?

Join EUobserver

EU news that matters

Join us