Under the proposed rules, banking institutions will have to hold a higher amount of capital to protect themselves against the risk of failure.
In the case of multinational companies, their supervision will be carried out not only at national level, but also with a higher, although cumbersome, cross-border cooperation. Moreover, the Commission hinted a possible increase on the level of coverage that European banks have to guarantee for saving deposits.
Commission President José Manuel Barroso openly called for "a structured, truly European response". "This is the only way to make sure that stability and confidence will return", he said yesterday during a press conference in Brussels.
However, the announced steps forward are only a partial response to the needs and the requests, which have been raised in the past months and made more urgent by the current crisis.
In particular, the Commission decided to propose only a limited guarantee for financial institutions which issue securitised products, considered at the origin of the current global turmoil. In other words, a financial institution that repackages loans in tradable securities will be forced to keep a 5% of the exposures, rather than the original 15% foreseen.
The EU executive modified the figure after strong pressure from the banking industry, with Internal Market Commissioner Charlie McCreevy yesterday restating his conviction that the origins of the crisis were in the "regulated" banking sector. But critics said he omitted to mention that the sub-prime market, where the chain effect started, has been highly unregulated.
McCreevy however rejected any idea of a unique European supervisor to protect Europe from potential future crises, an idea which is supported by the two main political parties in the European Parliament. He pushed forward the plan for collegial supervision, labeling it "a pragmatic step".
According to the proposal, any multinational group will have an ad hoc college of supervisors, made up by the authorities of the states where the company operates (EurActiv 12/09/08), but with an unclear power sharing.
The boldest proposals include the obligation for banks to hold at least 25% of their own funds to guarantee their lending operations to other banks. In addition, the Commission "is planning further improvements, especially with regard to the speed of payouts and levels of coverage" for deposit guarantee schemes. At the moment the EU rules foresee that all deposits in EU banks are covered for only €20,000. In the United States the figure will be raised to $250,000 if the bail-out bill will be passed.
