The European Commission has brought forward proposals to change the behaviour of the 8,000 banks that operate across Europe by:
Requiring banks to hold more and better capital to resist future shocks by themselves (the Basel III agreement).
Setting up a new governance framework giving supervisors new powers to monitor banks more closely and take action through possible sanctions when they spot risks, for example to reduce credit when it looks like it’s growing into a bubble.
Producing a single rule book for all EU banking regulation.
On capital buffers, the Commission wants to introduce two capital buffers on top of the minimum capital requirements: a capital conservation buffer identical for all banks in the EU and a countercyclical capital buffer to be determined at national level.
The proposals also seek to reduce reliance on external credit ratings by requiring banks to base their investment decisions on their own internal credit opinion, as well as on ratings.
The EC’s Internal Market Commissioner, Michel Barnier, comments: “The banking sector will have to hold more capital and better quality capital every time it is taking risks.”
He adds: “Only when all these rules are in place can we really say we’ve fully learnt the lessons of the crisis.”