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European Union regulators warned Tuesday that they may have to regulate credit default swaps after the financial industry failed to agree on forming a central agency to handle the derivatives, which are partly blamed for the world financial crisis.

EU Financial Services Commissioner Charlie McCreevy said he was prepared "to go the legislative route if necessary" to set up a central clearing counterparty for the swaps, which offer insurance on securities for lenders worried about a borrower's ability to pay them back.

He told a meeting of EU finance ministers that efforts to get the financial industry to set up a clearing system fell apart earlier this month.

"In the very last minute, the industry got cold feet," he said.

McCreevy warned last year of the urgent need to establish a framework for credit derivatives, including swaps, to plug a vacuum in the financial system since the September collapse of U.S. investment bank Lehman Brothers which negotiated many of the world's derivative contacts.

U.S. authorities are also pushing for a new system of central clearinghouses for credit default swaps, saying that would make deals more transparent and could reduce risk in the financial system.

In December, the Securities and Exchange Commission gave Britain's LCH.Clearnet Ltd. a temporary exemption from rules so it could operate a clearinghouse in the United States.

The swaps are commonly used contracts to insure against the default of financial instruments such as bonds and corporate debt. But they also are bought and sold as bets against bond defaults.

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