The European Commission has unveiled tough new rules for banks that would require them to enlarge their capital and strengthen governance.

Michel Barnier, the European commissioner for the internal market, announced draft proposals today that he said would “change the behaviour of 8,000 banks that operate in Europe”.

He said: “The financial crisis has hit European families and businesses hard. We cannot let such a crisis occur again and we cannot allow the actions of a few in the financial world to jeopardise our prosperity.”

The proposals, the revision of the Capital Requirements Directive, are the European Union’s response to the global banking rules known as Basel III. They will require banks to hold more and better quality capital.

“Only when all these rules are in place can we really say we’ve fully learnt the lessons of the crisis,” Barnier said.

The plan will have to be approved by EU member states and the European Parliament before it can become law.

The proposals consists of a regulation, which contains rules on capital, liquidity, and derivatives trading, and a directive, which concerns itself with capital buffers, enhanced supervision, improved governance and fines for banks that break rules.

The proposal will also tackle what the Commission sees as banks’ over-reliance on credit-rating agencies. Banks will be required to base investment decisions not only on ratings but also on their own internal credit opinions. In addition, banks with a material number of exposures in a given portfolio will have to develop internal ratings for that portfolio instead of relying on external ratings for the calculation of their capital requirements.

Sharon Bowles, a UK Liberal MEP who chairs the Parliament’s economic and monetary affairs committee, welcomed the draft proposals, saying they would be given the “highest priority”.

“This is an important part of the G20 agenda of regulatory reform and it is vital that other jurisdictions, notably the US, also bring in the Basel III rules,” she said.

Some member states remain critical of the proposals, notably over what they perceive as a lack of flexibility in the rules. Barnier has proposed introducing minimum and maximum capital rules, but some national governments want the power to go further.

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