04 March 2008

FT: EU makes cross-border banking key priority

More effective cross-border banking supervision is a "key priority" for European Union policymakers as they battle to restore confidence in financial markets, according to officials. "We are trying to put in place strengthened crossborder banking supervision. This is the key priority for Europe," one official said. "If you had a serious failure at a bank with extensive cross-border operations, it would affect many other banks and countries as well."

The officials were speaking as finance ministers from the EU's 27 members prepared for a meeting in Brussels today that is expected to concentrate on financial market stability, sovereign wealth funds and the bank secrecy rules of tax havens. Ministers of the eurozone's 15 nations held an advance meeting yesterday.

According to a background paper for today's session, there is no end to the market turbulence that erupted in August. "The international financial system continues to be marked by uncertainties," it says.

One official indicated this was something of an understatement, saying: "The situation hasn't got better since Christmas. We still don't know how bad it will get."

EU financial experts estimate that 20 of the world's biggest banks reported losses last year of $163bn (€107bn, £82bn), and say more losses are expected. They forecast that bank profits will suffer as the outlook for non-interest income deteriorates and loan loss provisions are set to increase.

Charlie McCreevy, the EU's internal market commissioner, plans to propose amendments to the so-called Basel II capital requirements directive by September or October, so that banks take more precautions against risks on their books than is currently necessary.

If legislation were needed to adopt Mr McCreevy's proposals, and EU governments and the European Parliament were to approve them without a long delay, it should be possible for the amendments to take effect by 2010, officials said.

Among the topics Mr McCreevy wants to tackle are banks' liquidity risks, securitisation risk weights and hybrid capital. The activities of the world's credit ratings agencies are also under study with the Committee of European Securities Regulators and another group of securities markets experts expected to give their advice on the agencies' role and practices by May, officials said.

Germany, meanwhile, will seek support for tougher rules that would oblige European tax havens to disclose details of funds held by EU residents.

By Tony Barber in Brussels

© Financial Times