Strict new rules to bring the banks to heel

The financial crisis is still hitting families and businesses across Europe hard. We can't let such a crisis happen again, and we can't allow the actions of a few in the financial world to jeopardise the rest of society.

The IMF estimates that European banks made losses close to 1000 billion (£878 billion) between 2007 and 2010. And it is taxpayers all over Europe who have been hit with the full cost of saving the financial system 2000 billion. No banker should have a free ride, incurring losses at taxpayers' expense.

That's why the European Commission has today brought forward proposals to change the behaviour of the 8000 banks that operate in Europe so they don't repeat the mistakes of the past. Banks have taken too many risks, including investing in dodgy products and lending too much without checking that loans could be paid back. By doing this, they exposed themselves to excessive risk and weakened both the borrowers and themselves.

Our objective is greater responsibility. Our proposals will require banks to hold more, and better, capital. Just as families try to put aside money for a rainy day, so banks, too, must have adequate capital reserves to deal with unexpected shocks and bad times.

We also want supervisors to monitor banks more closely and take action when they spot risks: for example, to reduce credit when it looks like it's growing into a bubble.

We aren't trying to stop banks lending. On the contrary, it is essential that banks help people take out a mortgage or a loan for their business. But they must do so in a responsible way.

Checks and balances imposed from the outside won't be enough to make banks change their ways. Their whole culture needs to change from the inside. Banks need to be better governed: we'll require boards to hold the banks' managers to account, or to ensure that risks are better analysed and acted upon.

We have all been shocked to see poorly performing banks continue to dole out cushy bonuses to their executives. Today's proposals will help put an end to that. If capital levels of a bank fall too far, bankers' bonuses and payouts to shareholders should be put on hold until the bank has shored up its defences.

Banks must also be less dependent on the three big credit-rating agencies, whose track record is far from perfect. Big banks should do their own homework and thoroughly assess how worthy an investment is, rather than relying on external ratings in a mechanical way.

We also need to recognise that times have changed: many banks are no longer national but international. If we don't have common rules at European level, who should an international bank be responsible to? Regulation and supervision need to be organised jointly in the EU to be effective. And when the rules are broken, we need stronger sanctions. All national supervisors should be able to impose deterrent fines and have whistle-blowing programmes to improve the detection of violations.