On Wednesday, the European Parliament, by a 454 to 106 vote, approved amendments to the existing "Capital Requirements" Directives 2006/48/EC and 2006/49/EC. The new requirements are intended to "improve the transparency and the supervision of the financial system to ensure proper risk management in the banking sector" and are derived from a report released to the Parliament by the Economic and Monetary Affairs Committee in March. Key features of the legislation include:

  • Establishing a “college of national banking supervisors” that will “facilitate cooperation among member state authorities dealing with cross-border financial institutions”;
  • Tightening controls on large exposures, by subjecting banks to stricter limits on credit exposures to any single client or group of clients;
  • Requiring institutions selling assets into securitized pools to retain a minimum of 5% of the total value of the sold assets; and
  • Establishing a central clearing house for credit default swaps.

The new legislation also calls for a comprehensive review of all “rules regarding pro-cyclicality and leverage” by the end of 2009.