European Parliament votes down 'hair-raising' CDS charge

A "hair-raising" capital charge for credit default swaps in Europe that are not centrally cleared has been voted down by a European Parliament committee.

The Economic and Monetary Affairs Committee was voting on potential changes to the EU's capital requirements directive (CRD). Among them was a proposal made by French Socialist MEP Pervenche Beress, which would have limited any regulatory capital benefits of CDS to those cleared via a central counterparty in the European Union.

"There were some hair-raising figures as to how that was going to affect regulatory capital requirements," an industry source said. Although it would be difficult to calculate the exact amount of extra capital banks would have been forced to hold, the figures would have been "in the billions", the source estimated.

Although the proposal was ultimately voted down, the committee also gave approval to a raft of other measures first mooted by the in October. This includes a specific call for regulation of CDS and the setting up of a central counterparty clearing house supervised by the EU. The committee wants legislative proposals for both to be in place by the end of 2009.

Elsewhere, the committee gave a green light to various changes to the CRD, which would be implemented by the EU's member states from the beginning of 2011.

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