PARIS — Major European banks have begun expanding across the Continent in recent

years, amassing large pools of capital and customers. Yet bank regulation at the
European Union level has hardly kept up.

Should one of the new European giants find itself on the verge of collapse or under
threat, as has happened to some U.S. banks, it might be forced to scramble for help from
a multitude of potential crisis managers, none with overarching authority.

"If, God forbid, we get to that point, the arrangements will prove inadequate," Richard
Portes, professor of economics at the London Business School, said.

European lenders have been spared the worst of the fallout of the crisis on Wall Street,
but the patchwork of rules that apply to financial services firms is causing concern
nevertheless. Regulation in Europe remains mainly at the national level. Initiatives in
Brussels to create an overarching regulator have been stamped out by politicians.

Some members like Germany, Ireland, Sweden and Britain have moved to a single
supervisor who oversees not just banks but other segments of the financial services
industry, like insurance and securities. Others, like France and Spain have retained an
older model in which different segments of the industry have separate regulators.

The coordination of European financial supervision has gradually improved over the
years, analysts said. For example, EU regulators meet periodically in committees to
advise the European Commission on drafting new rules.

But the kind of bailout under way in the United States would be hard to put together in
Europe. Rescuing even a major bank operating across borders would require political
will and coordination that might be lacking.

To be sure there is also a patchwork of regulators in the United States. But the two key
bodies - the Federal Reserve and the Treasury - were able to move quickly and jointly to
create the $700 billion rescue plan, which will now need to be approved by Congress.

In Europe, the opaque nature of rules concerning the insolvency of a financial institution
that operates in different countries in particular is causing unease.

An EU directive calls for the home country's jurisdiction to take the lead, and for equal
treatment of creditors within the EU. But laws governing winding up failed banks differ
markedly from country to country, with some favoring debtors while others favor
creditors. Also, there is no common definition of bank insolvency and no common rule to
determine when a bank should be closed.

Central bankers and supervisors in Europe periodically hold crisis simulation exercises.
But analysts expressed real doubts about whether they would be able to exchange the
accurate and timely information on each bank's risk profile to act promptly to contain a
crisis.

"Look at how fast the U.S. had to move" to bailout the insurer AIG and to decide to let
the investment bank Lehman Brothers collapse, said Portes, the professor.

"There's a big distinction between liquidity and solvency," Portes added. "It's very hard
to tell whether an institution is illiquid or insolvent. If it's insolvent, it's down to the
taxpayer, but which taxpayer is liable in the case of a cross-border bank?"

In April, European finance ministers took a first step by signing a memorandum of

The document, which came into effect in June, called on countries to consider creating
new "cross-border stability groups," building on existing supervisory networks.

These, for example, operate between Belgium and the Netherlands to monitor cross-
border banks.

Charlie McCreevy, the internal market commissioner, is expected to go further next week
and to propose greater coordination of national regulators to deal with cross-border
banking crises.

His spokesman, Oliver Drewes, said the commissioner "is producing a number of
concrete regulatory proposals to improve the rules for financial institutions dealing on a
cross-border basis."

But would taxpayers in one country be willing to help finance a bailout for a bank based
in another?

"Europe is not a country, it's not the United States of Europe, with a federal
government," Graham Bishop, an independent consultant on financial services in
Europe, said. "The taxpayers of one country do not feel a natural affinity for those in
another country."
While banking integration in Europe has proceeded at a relatively slow pace, there have
been cross-border deals in recent years. Banco Santander of Spain, for example, owns
the British mortgage lenders Alliance & Leicester and Abbey National and has consumer
finance operations in a number of countries. UniCredit of Italy now owns
HypoVereinsbank of Germany and Bank Austria. In October, Royal Bank of Scotland led
a European consortium to buy ABN AMRO of the Netherlands.

As it operated almost exclusively in Britain, the nationalization in February of Northern

The German government, working through a state-owned bank, managed the insolvency
and eventual sale of IKB Deutsche Industriebank, one of the first hit by the crisis.

In many countries the central bank takes a leadership role when a financial crisis occurs
because, as the issuer of money and the conduit of lending to banks in money markets, it
can most readily offer emergency financing to the markets or to individual banks. But the
European Central Bank's crisis role is constrained.

For political reasons, it is not a "lender of last resort," a term used by economists to
describe an institution willing to extend credit when no one else will. In the United States
that role is served by the Federal Reserve.

Still the ECB has proved adept in handling the liquidity issues related to the current
crisis, providing massive funds for banks to borrow.

"If you have a liquidity crisis, the ECB can do the job," said Bishop, "but when you have a
solvency crisis, it falls to governments."

The European Parliament voted overwhelmingly on Tuesday for tougher capital and
disclosure rules for hedge funds and private equity investors. The vote is non-binding. .

Stephen Castle contributed reporting from Brussels.