The European Union proposed new, tougher rules for banks that will force them to raise some euro460 billion ($650 billion) in capital by 2019 to protect themselves from another financial crisis.
With Wednesday's proposal, the 27-country bloc becomes the first jurisdiction to implement the so-called Basel III rules on bank capital, agreed by the world's biggest economies after the collapse of Lehman Brothers in 2008 rattled global markets.
"We cannot let such a crisis occur again and we cannot allow the actions of a few in the financial world to jeopardize our prosperity," said the EU's Internal Markets Commissioner Michel Barnier.
The proposals force the region's banks and investment firms to hold capital buffers that are bigger, of better quality and more easily accessible. They are "a tremendously important step forward in learning the lessons from the crisis and adopting a new approach to risk," Barnier said.
The EU will force all 8,200 banks and investment funds based in the bloc to stick to the new capital requirements. By contrast, the U.S., which has promised to implement the Basel III rules, will only make the 20 biggest lenders apply the rules, Barnier said.
The new regulation will come into force gradually before banks have to reach the full capital levels in 2019, requiring them to raise some euro460 billion in extra capital by 2019, according to estimates from the European Commission.
Barnier said that the banks will be given enough time and that he was sure the new rules, which still have to be approved by EU states and the European Parliament, will not restrict their ability to fund the European economy in the meantime.
Some analysts criticized the long deadlines given to banks to reach the new capital levels.
"The euro460 billion of additional capital estimated under this is needed today not in 2019," said Sony Kapoor, managing director of Re-Define, a think tank lobbying for financial sector reform. "The weakness of the EU banking system has played a central role in the failure of EU policy makers to reach a quick and decisive solution to the euro crisis."
Under the new rules, banks have to hold capital worth at least 8 percent of their investments, loans and other risky assets _ the same as currently. However, the purest form of capital, known as common equity Tier 1, has to rise from 2 percent currently to 4.5 percent by 2015.
Over the following years, banks are expected to build up the extra 2.5 percent of common equity Tier 1 capital and set aside more money in good economic times. If they fall below a certain threshold, they will no longer be allowed to pay dividends or bonuses.
In addition to the capital requirements, the new banking rules will also eventually set out how much liquidity _ assets that can be turned into cash quickly in an emergency _ firms have to hold. Basel III foresees banks holding enough liquid assets to sustain a 30-day credit crunch, but EU officials said Wednesday the bloc still needed more time to figure out how that will work in practice.
The proposals also give more powers to banking supervisors, such as the right to run annual national stress tests, in addition to the EU-wide ones, and the power to fine firms breaking the rules at up to 10 percent of revenue.