The European Union has put forward its plan for a tougher stance on banks to prevent them from a future mauling at the hands of a global credit crunch. The new rules would stop banks lending more than a quarter of their funds. They would also have to share some of the risk when lending to customers.
 
Commissioner Charlie McCreevy outlined his plans: “Today’s proposals will restrict banks in their lending to other parties, even to other banks. This may sound counter-intuitive in times of a liquidity crunch. But I must clarify that we are not banishing inter-bank-lending into oblivion, but we are ensuring that no institution puts all of its eggs into one basket,” he said.
 
France has led calls for rules that limit state aid to companies to be relaxed so that bailing banks out would be easier. But the European Commission is having none of it.
 
EU competition commissioner Neelie Kroes said: “The state aid rules are part of the solution, and they are not part of the problem. The application of the state aid rules by the Commission is an equitable and objective manner and it is a vital contribution to a coordinated European reaction to threats to the viability of the individual financial institutions and to the stability of the financial system as a whole.”
 
Under the new proposals, national watchdogs will remain but would share information whenever banks do their business in other countries. The plans would not be in place before 2010, but the Commission has suggested recent bank rescues prove the existing regulation system is coping for now.

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