A squeeze on credit fall in house prices and tumbling stock markets are all reinforcing a slump in consumer confidence, consumption and investment in the EU FS sector. In order to stop this downward spiral, the EC has a number of countercyclical macro-economic proposals in the pipeline.
The Capital Requirements Directive revision will tighten up rules on own funds requirements for banks. The proposal will require banks to set some capital aside even when assets are securitized. Currently banks do not have to do this. Therefore a bank can grant credit knowing that it will not keep the credit risk on its balance sheet. There is a significantly lower incentive to look at the creditworthiness of the debtor if the bank knows they are not carrying the risk.
The Financial Collateral Directive amendment will satisfy the need for more collateral and the use of more easily valued assets. The proposal is to enlarge the pool of collateral which is protected to also include credit claims. The regulation for Credit Rating Agencies has been proposed to ensure high-quality credit ratings which are not tainted by conflicts of interest. The proposal stipulates conditions for their authorization, operation and supervision.