EU’s Barnier says will mull short-selling curbs

January 13, 2010

By John O’Donnell

BRUSSELS, Jan 13 (Reuters) – The European Union’s designated financial services chief has pledged to examine curbs on short-selling and extend a planned regulatory shake-up to every corner of the industry, blamed by many for the economic crisis.

Outlining his plans to push through a welter of rules that will tighten the policing of banks as well as curbing runaway borrowing, Michel Barnier said: “We need to turn the page on an era of irresponsibility.”

“We are going to reform. No market, no financial player … should be able to escape. I will not shy away from the difficult subjects of sanctions and short-selling.”

Barnier made the remarks on Wednesday to European Union parliamentarians, who were quizzing him to test his suitability for the post of financial services chief. The job would put him in charge of a European Union banking overhaul.

Barnier, 59, laid down his agenda for a five-year term that could see investment banking shrivel in the 27-country bloc, returning bankers to their roots of no-frills lending to households and businesses.

He flagged his interest in bolstering the amount of capital banks are required to keep, a move many expect would restrict their ability to lend by making it more expensive for banks to refinance such loans, as well as regulating hedge funds.

Banks already face having to set aside more funds or raise new capital from investors in as little as three years, according to proposals by a global regulatory body.

Barnier said he would examine extending pay curbs for bankers to other financial services such as insurance or hedge funds. “We are looking at the structure and control of remuneration,” he said.

GOLDEN GOOSE

Barnier, a former foreign minister, sought to play down fears that he would let Paris dictate a clampdown on the region’s bankers, most of whom are in London.

Relations between London and Paris have been strained since French President Nicolas Sarkozy claimed Barnier’s appointment as a victory over freewheeling Anglo-Saxon capitalism and Britain.

The row simmered again at Wednesday’s sometimes boisterous hearing.

“Don’t kill the goose that lays the golden egg,” British parliamentarian Godfrey Bloom said, appealing for Barnier not to pressure the UK financial capital.

“Let there be no doubt,” Barnier told lawmakers. “I’m not going to be taking orders from Paris, London or anywhere else.”

As internal-market commissioner and part of the new 27-person executive European Commission, Barnier will have significant leeway in setting the agenda for banking.

As well as proposing new regulations, he will help broker a compromise between the European Parliament and the bloc’s countries on rules that would shrink banker pay.

The EU is working on rules that would force banks to delay bonus payments and could let employers claw back payouts to star traders, for example, if their stock market bets unravel.

A committee of European securities regulators is already finalising market rules on curbing some types of short-selling for the Commission to consider introducing.

Short-selling typically involves an investor borrowing shares and selling them on in the hope that the price will fall and he can repay the lender with stock bought for less.

The British government temporarily outlawed the practice when its big banks, already on the brink of collapse, were further undermined by short-sellers.

(Additional reporting by Huw Jones in London, Editing by Dale Hudson) ((john.odonnell@thomsonreuters.com; tel +32 2 287 6817 or +32 473 92 48 90))

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