BRUSSELS, Oct 1 (Reuters)
European Union leaders are looking at what they can do to strengthen the bloc's financial system after they were forced to rescue banks in Britain, Belgium and Germany.
The following are some scenarios for what sort of new regulations the EU could introduce:
– BEEF UP BANK CAPITAL
Forcing banks to set aside more money to withstand rocky markets is a core aim. The European Commission will propose tougher capital requirements for banks on Wednesday, particularly on risky operations such as turning some forms of debt into securities.
– REFORM CREDIT RATING AGENCIES
The agencies were blamed by the European Commission for failing to "sniff the rot" in securitised debt which turned toxic, forcing banks to write down billions of euros. The EU executive will propose mandatory oversight of the sector later in October.
– BETTER OVERSIGHT OF BANKS AND INSURERS
The Commission has already proposed a new system for overseeing cross-border insurers by setting up a college of supervisors for each one, made up of all regulators who oversee the bank and its branches dotted around the EU. That proposal is set to be adopted into law by year end.
Wednesday's proposal for tougher banking capital requirements will propose a similar system for that sector too. In both cases, a cross-border bank or insurer's home regulator would have the last say. But this could prove controversial for EU states where their main banks have their head office elsewhere in the EU, because they fear losing supervisory control.
– EASING ACCOUNTING RULES
EU leaders will look at whether they should follow the U.S. example and ease the mark-to-market accounting rule which forces banks to price their assets frequently even if they intend to hold them for the long time. Some assets like mortgage-backed securities have become untradeable, making it hard to calculate their value and the mark-to-market rule is blamed by critics for causing huge writedowns which unsettle markets.
– EU-WIDE SUPERVISION
A more radical shake-up of what is still essentially a national based system of banking supervision.
France has called for a "European policeman" to supervise banks and insurers. Many leaders have been impressed with how the European Central Bank intervened early in the credit crunch and would like to see it have a key role in some form of new pan-EU mechanism to oversee the financial sector. The ECB currently limits itself to broader financial stability issues. Past attempts to centralise supervision have floundered as states like Britain don't want to give up regulatory sovereignty.
– CURBING SHORT SELLING IN BANK SHARES
Several EU states have already introduced curbs of some form on short-selling of bank shares but there are calls to keep them in place for longer.
– "FAT CAT" PAY PACKETS
– There have been several calls by leaders such as Luxembourg Prime Minister Jean-Claude Juncker to tackle what he sees as the "scourge" of fat bonuses received by bankers. The European Commission issued guidelines to EU states in 2004 recommending that executives publish their salaries or explain why they won't do so. It also recommended that shareholders have a say in executive pay. Only the Netherlands has applied the guidelines.
