EU Bank-Separation Push Falters as Lawmakers Are Divided
European Union plans to ban proprietary trading and break up the blocs biggest banks are faltering as lawmakers clash over fundamental principles of the bill.
The European Commission, the EUs executive arm, presented its bank-structure overhaul a year ago to address the threat posed by too-big-to-fail banks. The bill has proven divisive in the European Parliament and among national governments, leading some legislators to say its days may be numbered.
The chances of any serious progress on the proposal for structural reform of the banks are diminishing rapidly, Richard Reid, a research fellow for finance and regulation at the University of Dundee in Scotland, said by e-mail. In part its because quite a few governments see no real need to substantially reshape their banking systems.
The push for an EU-wide law lags behind the U.K., whose so-called Vickers rule will force Britains biggest lenders to split off core consumer banking from trading activities. Other countries such as France, Germany and Belgium have also developed their own measures.
The bill would cover banks that have assets exceeding 30 billion euros ($34 billion) in three consecutive years and trading activities of more than 70 billion euros or 10 percent of assets. It specifically captures the European banks labeled as globally systemic by the Financial Stability Board, including HSBC Holdings Plc and Deutsche Bank AG. (DBK)
The commissions blueprint sought to ban the lenders from certain activities, such as proprietary trading and investing in hedge funds, while also forcing supervisors to assess whether the banks should have to separate off some trading activities into separately capitalized units.
This separation would take place if the investment banking surpassed certain thresholds and if the lender couldnt demonstrate that the move was unnecessary.
The bill requires approval from the EU parliament and the Council of the European Union, the institution that represents national governments. Both bodies are currently trying to settle on their negotiating positions on the draft law.
The lead lawmaker on the file in parliament, Swedens Gunnar Hoekmark, has put forward an amended version of the law that faced pushback during a debate last week. In the council, nations have called for further explanation of proposals put forward by Latvia, which holds the blocs revolving presidency.
Hoekmark, a member of the assemblys largest center-right group, proposed giving supervisors more freedom to decide if separation is necessary, and to focus the legislation more narrowly around making sure a bank can be wound down if it fails. This approach ran into opposition from lawmakers seeking more far-reaching measures.
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EU Bank-Separation Push Falters as Lawmakers Are Divided