Banks would have to put aside more money to guard against risks arising from credit derivatives and also face limits on how much debt they can hold relative to assets under European Union proposals to overhaul capital requirements.
Tighter rules are needed though there is a risk the measures "could slow recovery," the European Commission said Friday. The agency is seeking views from banking supervisors and companies on the likely effect of its plans, which also include calls for lenders to set aside capital in good times to use as a buffer in hard times.
"It is vital that we further strengthen the solidity of financial institutions and put in place new rules in order to be better prepared for the crises of tomorrow," said Michel Barnier, the financial services commissioner.
The commission's plans are part of a worldwide effort to bolster banks' capital after the worst financial crisis since the Great Depression. Global regulators met in Switzerland this month to discuss what ratios of capital banks should hold relative to the risks they take on investments and loans. "It is essential that we learn all the lessons from the crisis," Barnier said in the statement.