The European Parliament on Wednesday voted in favor of updating the rules that the European Union (EU) banks will have to comply with beginning in 2010. The votes were broken into 454 in favor, 106 against and 25 abstentions.
The tougher bank capital rules are believed to be a first step toward restoring confidence in markets. To make markets safer for investors, banks will be required to retain 5% of securitized products they originate and sell. This is a way to ensure these institutions have properly assessed risks in the products. The reform also puts a cap on how much banks can lend each other and sets up "colleges of supervisors" for each cross-border bank so that the regulators can work more closely with them.
The EU is the first major body to mandate retention of securitized products, a step that the International Organization of Securities Commissions, a global regulatory grouping, recommended on Tuesday.