Barroso urges stronger EU financial supervision

By Huw Jones and Paul Taylor

BRUSSELS (Reuters) - The European Commission called on Wednesday for more consistency in deposit guarantee schemes and stronger European financial supervision as EU governments went their separate ways in response to the credit crisis.

Commission President Jose Manuel Barroso said he was working with French President Nicolas Sarkozy and the European Central Bank to present proposals to leaders of the big four European powers at a meeting tentatively set for Saturday.

But the French government said no firm date had been fixed for the meeting, which officials said would only take place if there was a sufficient consensus on a joint approach.

"It's not just a problem of injecting liquidity," Barroso told a news conference. "We also need to inject credibility in the European response. That's why we are urging member states for closer cooperation."

Ireland's decision to guarantee all deposits in Irish banks infuriated Britain, sucking money away from British banks where the guarantee is more limited, and drew fire from Brussels.

When asked about the Irish move EU Competition Commissioner Neelie Kroes said: "I make a plea to national governments today not to act unilaterally but to continue the practice of involving the Commission. It is a must."

Irish Prime Minister Brian Cowen said after talks with Sarkozy in Paris that the president backed the Irish pledge, which covers up to 400 billion euros of liabilities -- more than twice Ireland's annual gross domestic product.

France denied an Irish Times report that it would follow suit in giving an unlimited guarantee to depositors.

SHARED RISK

Drawing one lesson from the credit crisis, the Commission proposed legislation on Wednesday to force banks to tie up more capital to cover risky operations, and to limit how much they can lend to one party.

Banks that sell securitised products or repackaged debt such as those that turned toxic in the credit crunch, will have to share the risk with buyers. This will be done by the bank retaining a stake of at least 5 percent in the products.

Internal Market Commissioner Charlie McCreevy also said the EU would follow other parts of the world, such as the United States, in changing rules on fair-value accounting.

A requirement that companies regularly restate the value of assets on their balance sheet to reflect changed market prices has been widely blamed for exacerbating the credit crisis.

Barroso and Luxembourg Prime Minister Jean-Claude Juncker, chairman of euro area finance ministers, appealed to the U.S. Congress to pass a $700 billion rescue package for distressed banks seen as key to steadying the global financial system.

Germany, sceptical of more centralised EU regulation or guarantee funds to which it would be the biggest contributor, said there was no need for a U.S.-style rescue package in Europe but each country should do what was needed at home.

Barroso said the fact that member states, acting together or alone, had rescued several European banks this week showed the existing system of regulation, based largely on national governments and regulators, could cope for now.

But in the longer term, Barroso said, the EU needed to go further in coordinated action to restore full confidence.

"We need a further strengthening of the supervision structures at European level," he said.

The Commission strongly rejected a suggestion by France that EU rules limiting state aid to industry should be eased to facilitate banking rescues.

"The state aid rules are part of the solution and they are not part of the problem," Kroes told reporters.

Barroso declined to make specific proposals such as a single European financial regulator, saying he did not want to announce ideas that would not be followed by practical measures.

Without saying whether he favoured a pan-European agreement on the protection of citizens' savings, he said: "We need to improve the consistency of deposit guarantee schemes."

McCreevy said he would propose a reform to ensure that depositors were compensated within days instead of three to nine months under current EU rules.

Barroso insisted that EU governments should strengthen structural reforms to make their economies more competitive, saying the "real economy" was bound to come under increased pressure as a result of the credit crisis.

(Additional reporting by Ingrid Melander and Huw Jones in Brussels, Francois Murphy, Anna Willard and Emmanuel Jarry in Paris, Erik Kirschbaum in Berlin, Kevin Smith in Dublin and Adrian Croft in London; Editing by Sharon Lindores)