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New banking rules from Europe would punish banks for paying bonuses that encourage too much risk-taking and force those taking big trading bets to build up a larger buffer of capital.
A draft law from the European Commission is an attempt to prevent a repeat of the banking crisis that saw governments forced to use hundreds of billions of taxpayers' pounds, euros and dollars to bail out banks whose outrageous bets went sour.
The rules, similar in many ways to those being proposed in the UK, would make it harder for banks to take excessively large risks when betting on the markets.
Banks will have to double their capital requirement - the amount of cash kept available to make good on losses - on risky assets held on their trading books.
There would also be a higher capital requirement for "slice and dice" re-securitisations to better reflect the risks the products contain. This is aimed at preventing a repeat of the subprime mortgage crisis, where huge numbers of mortgage debts were chopped up into new products and sold on repeatedly until the eventual value of the asset was impossible to gauge.
The EC rules are due to come into force in 2011.
However, banks countered that the stricter criteria for their capital requirements would restrict the amounts they were able to lend, just as economies around the world are suffering from a lack of credit.
On pay, the proposed laws would seek an "appropriate" balance between fixed pay and bonuses.
"It is true that employment contracts are likely to be renegotiated and that the fixed component awarded could be higher," the Commission said.
The European Banking Federation said the draft did not contain any major surprises although it was concerned that supervisors of the banks should not be allowed to dictate how much bankers are paid.
