The European Commission has launched a proposal for further revision and tightening of the rules on bank capital, position disclosure and remuneration policies. The proposal aims to deal with these factors which, in the view of the Commission, lie at the root of the financial crisis.
The new proposal imposes higher capital requirements for banks in cases of re-securitisations. This is intended to ensure that banks conduct a proper risk assessment when they invest in such products. The higher capital requirements will limit the amounts they can spend on re-securitisations.
New and stricter disclosure rules on trading book positions/risks and therefore the level of risk to which banks expose themselves, are aimed at increasing market confidence and inter-bank borrowing.
Finally, the new rules on remuneration policies and pay incentives should prevent excessive risk taking from being rewarded or encouraged. Banking supervision authorities will have the power to sanction banks with non-compliant remuneration policies and/or practices.