BRUSSELS, Sept 12: The European Commission on Tuesday proposed setting strict limits on the powers of central banks to block mergers and takeovers in the banking sector.

The proposed amending directive is aimed at preventing protectionist actions of the kind recently seen in Poland and Italy in particular.

Charlie McCreevy, the EU's internal market and services commissioner, said current rules “afford considerable latitude to the relevant authorities in accepting, discouraging or even rejecting a proposed acquisition.” At the moment, a central bank can block any proposed deal simply on grounds of the “suitability of the proposed acquirer”.

The new regulations would force supervisory authorities to be fully transparent and to apply only certain established criteria in their assessment of both domestic and cross-border mergers and acquisitions, McCreevy said.

“Critically,” he added, “they leave no room for political interference or protectionism.” The amended directives would require central banks to justify interference in a proposed deal by reference to the following criteria only: the reputation of the proposed acquirer, the reputation and experience of those who may run the resulting institution, the financial soundness of the proposed buyer, compliance with relevant EU financial sector directives risk of money laundering and terrorism financing.

The new rules would also cut the amount of time available to central banks for assessing a takeover from three months to 30 days and would allow them to suspend any deal only once.

The proposed amending directives must now be approved by the European Council and the European Parliament.

The Commission denied any direct link between the proposals and recent cases in Italy and Poland that have shaken the banking sector, saying they had been longer in the pipeline than that.

But McCreevy did comment on the Italian and Polish affairs.

Rome is still under investigation by the Commission over last year's actions by the governor of Italy's central bank, Antonio Fazio, who blocked foreign hostile takeovers of two Italian banks in the name of “Italianness”.—AFP