EU proposes tougher banking rules to avoid another financial crisis
July 21, 2011‐ London, UK
Every crisis situation gives us an opportunity to lean and become much better and tougher and this is exactly what EU is trying to do. EU's Internal Markets Commissioner Michel Barnier says that we should not see another huge financial crisis nor allow the fate of few financial institutions to jeopardize the prosperity of all.
The EU has come up with a new set of rules that will force banks and investments to have a capital buffer that is bigger and of better quality as part of the move towards Basel III implementation. Some 8200-odd banks will have to rush to raise their capitals. USA which agreed to be part of Basel III now appears to be only insisting that the top 20 big lenders confirm to the new capital requirement. The banks will have time till 2019 to raise their capitals which is at about 460 billion euros ($650 billion).
The new rule insists that banks hold 8% of their investments, loans and other risky assets to be in the same as currently.
The recent stress stress, particularly on European banks has shown that the top 8 lenders have a combined 2.5 billion euro shortfall in capital they need in order to cope with a financial shock in future. In other words, these banks are more vulnerable and because these are giant names, if they collapse, it will trigger a ripple effect on the financial system.
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