FACTBOX-EU, U.S. financial reform proposals compared

Wed Jan 6, 2010 11:40am EST

Jan 6 (Reuters) - The European Union and United States make up most of the world's capital market and are adopting rules to lessen the need for more bank bailouts in future crises.

The rules follow pledges made by the G20 group of leading countries but some differences are emerging, worrying a highly global financial industry.

The following is a comparison of laws under discussion:

DERIVATIVES

U.S. House of Representatives approved in mid-December a law to require central clearing of standardized over-the-counter (OTC) derivatives contracts, with trading on exchanges where possible. Swaps not cleared centrally must be reported. But big users such as airlines can be exempted from central clearing.

Regulators, under House bill, would set position limits on some contracts. Financial firm clearinghouse stakes capped at 20 percent.

Senate has competing bills that will need to be merged with House bill and wants narrower range of exemptions.

European Commission to propose EU law mid-2010 to mandate central clearing of wide range of OTC contracts, give supervisors powers to set position limits, require reporting of trades to repositories.

Unclear if corporates will get exemptions from clearing. EU less categoric than United States on need for exchange trading. No caps on ownership of clearing houses anticipated.

FINANCIAL SUPERVISION

EU governments have preliminary deal on draft law to centralize bank, insurance, markets supervision via three bloc-wide authorities. New risk monitoring board hosted by the European Central Bank to be created but with no binding powers. European Parliament has joint say and may make changes.

U.S. House has approved bill to set up inter-agency Financial Services Oversight Council to monitor systemic risk. Firms can be ordered to break up, submit "living wills". This goes much further than EU's planned risk body. No pan-EU powers to break up banks or deal with troubled firms even though cross-border firms dominate bloc's financial sector.

U.S. House bill also creates new consumer watchdog to regulate mortgages, credit cards, other financial products -- a step EU is not planning and which U.S. Senate has doubts over.

BANK CAPITAL

EU has adopted new rules forcing banks to retain 5 percent of risk in securitized products they originate. It also capped how much banks can lend to each other and set up colleges of supervisors for cross-border firms.

EU finalizing adoption of additional rules to increase how much capital banks must set aside to cover risky trading activities and increase capital requirements on re-securitized products. Supervisors would also have powers to slap extra capital requirements on banks whose pay packages encourage overly risky behavior.

U.S. House has also adopted rules requiring 5 percent retention of securitized products and powers to curb bank lending. EU and United States have pledged to adopt new global bank capital and liquidity rules now being thrashed out by the Basel Committee on Banking Supervision.

BANK PAY

All G20 countries, including United States and leading EU countries have agreed to guidelines on structure of bank pay packages to reduce overly risky behavior .

Britain introducing one-off tax of 50 percent on 2009 bonus round. France may follow suit. No sign United States will introduce windfall tax.

HEDGE FUNDS, CREDIT RATERS

EU expected to adopt law this year requiring mandatory registration and reporting requirements for managers of hedge funds, other alternative investments.

EU has adopted law introducing mandatory registration and direct oversight of credit rating agencies by national securities watchdogs this year.

U.S. House agrees hedge funds, private equity firms, offshore funds must register with SEC, which will also get new oversight over credit rating agencies.

ACCOUNTING

G20 has set mid-2011 deadline for converging world's major accounting systems, with focus on making International Financial Reporting Standards used in over 100 countries, including Europe, more global. United States standard setter leaning to more radical reform on valuing assets, a step that compiler of IFRS has said it won't follow.

(Reporting by Huw Jones in London and Kevin Drawbaugh in Washington, D.C.; Editing by Andrew Hay)

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