MercoPress. South Atlantic News Agency

EU announces strict rules but no US style banks bail out

Europe does not need a US-style bail-out of banks, but must introduce stricter financial supervision, a top EU official has said. Economy commissioner Joaquin Almunia said mimicking the 700 billion US plan to unfreeze credit markets was unnecessary because the situation was “less acute”.

Bolstering supervision rules would help boost confidence and stabilize volatile markets, Mr Almunia added. US Treasury and Federal Reserve are seeking rescue fund approval. It could buy bad debt from financial institutions with "significant operations in the US". The fund would aim to sell off these mortgage-related debts in the future when, the Treasury says, their value might have risen. France's state secretary for European affairs, Jean-Pierre Jouyet, said the European financial system was "still stable and doesn't need this kind of measure". "We have to be prepared to intervene where necessary," he said. Mr Jouyet, speaking on behalf of the French EU presidency, said increased financial regulation was crucial. "This laissez-faire attitude will not benefit anyone. It's too late for that. We now need to consider the extent of the risk, the power of the regulatory authorities and the type of intervention." Mr Almunia said the "dramatic fall in confidence" had been created by banks' lack of transparency and regulators inability to see what was going on. Banks have been reluctant to lend to each other - prompting central banks to inject billions into global markets to increase liquidity. "The latest events in financial markets have made it clear that the current model of regulation and supervision needs to be revamped," Mr Almunia said. In October the European Commission will propose new rules governing how much banks must keep in reserves, and set rule son how regulators should act if a bank is in danger of collapse. Credit agencies - which have been partly blamed for the credit crisis for the way they have listed risky debts as safe - are also likely to become an EU target. Better financial rules were "more urgent than ever before" and "could go a long way to restore confidence quicker than expected and limit the damage to our economies," Mr Almunia. Meantime in the US the Federal Reserve announced it was making 30 billion US dollars available to central banks in Australia, Denmark, Sweden and Norway, to ease money markets. The Fed said the aim was to "improve liquidity" globally, at a time when the availability of credit is limited. The Fed made a similar move with central banks in the UK, Canada, Japan and the European Central Bank last week, making 180 billion available. The Federal Reserve said it would take "further steps" if necessary. Commercial banks in each country can access the 30bn in the form of loans to increase short-term funding requirements. The central banks in Australia and Sweden will have access to 10bn and Denmark and Norway will have 5bn each. Central banks worldwide have been taking initiatives to boost the availability of funds, following a credit crunch that hit finance firms last summer. With the emergence of the sub-prime crisis and a huge rise in defaults on loans, banks have been increasingly reluctant to lend to each other. This in turn has made it harder for businesses and individuals to gain access to credit. The central banks involved in the latest currency swap deal involve the Reserve Bank of Australia, Sweden's Riksbank, Denmark's Nationalbank and Norway's Norges Bank.