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EU to sharpen banking rules amid financial crisis

(Xinhua)
Updated: 2008-10-01 18:26

BRUSSELS  -- The European Union (EU) is expected to announce a major reform of its banking rules on Wednesday in response to the current financial crisis which has been unfolding in Europe.

Under a proposal tabled by EU Internal Market Commissioner Charlie McCreevy, banks selling securitized products would be required to retain at least five percent of the products in a bid to improve underwriting standards, a key part of the changes to the 27-nation bloc's Capital Requirements Directive.

"Investors will be required to ensure that originators and sponsors retain a material share of the risks, and in any event not less than five percent of the total, so that effectively, equally originators and sponsors that are regulated by the capital requirements directive and those that are not regulated by it will have to retain a share of the risk," a document outlining the proposal said.

All interbank exposures would be limited to 25 percent of their own funds or below 150 million euros (216 million US dollars), with the higher threshold applying.

In order to improve supervision of trans-national banks, the proposal would call for colleges of supervisors to be set up, but the supervisor from the bank's home country should have a final say in setting overall capital requirements.

The European Commission is expected to adopt the proposal later Wednesday. To become law, the proposal would go to EU governments and the European Parliament for approval.