Brussels Softens Line On Bank Ringfences
The European commissioner in charge of regulatory reform of the region's banks has signaled a retreat from plans to force lenders to build barriers around their securities trading operations, as policy makers focus on stimulating growth.
Michel Barnier told the Financial Times that any implementation of last year's Liikanen report on the structure of European banks would have to "preserve their diversity" and avoid "penalizing" lenders that were supporting the economy.
European officials are working on a "precise impact analysis" of the Liikanen report, commissioned by the EU from a panel of experts led by Finnish central banker Erkki Liikanen. Mr Barnier promised to set out his "choices and priorities" by the summer after considering "all options" for structural reform.
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However, the commissioner made clear that the Liikanen report's central recommendation - that banks' trading activities should be hived off into ringfenced, separately capitalized units - risked undermining fragile European growth outlook.
"I don't want to penalize the work of banks when they work for the benefit of the economy and industry," Mr Barnier said on the fringes of last week's World Economic Forum in Davos. "Clearly a part of marketmaking is linked to supporting the industry and the economy."
Banks' trading activities break down into two broad areas: buying and selling on behalf of clients, for which banks need to stockpile an inventory of securities in a practice known as marketmaking; and proprietary trading, which involves banks trading with their own funds.
Mr Barnier's comments will be welcomed by big European banks, such as Deutsche Bank, which might otherwise face the threat of expensive restructuring that would hand a competitive advantage to US rivals.
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Mr Barnier said he was keen to "move on as soon as possible from the agenda of reactive repair to a proactive agenda".
The Liikanen report, published late last year, was seen in broad terms as a mirror image of the UK's earlier Vickers proposals, which are set to force British banks to ringfence their retail banking operations. But Liikanen goes much further than a comparable US reform, the so-called Volcker rule, which aims to ban proprietary trading at banks.
France has also initiated a reform process comparable with the Volcker rule. Mr Barnier would not say whether he thought the French formula was a good compromise, though he said he had "taken good note" of it.
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One member of the Liikanen committee, who continues to advocate full adoption of the ringfencing recommendation, said last night that it was dangerous for policy makers to switch the focus to growth before the problems of the past were fixed.
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"There is a risk that a complacency about the rebound in markets means regulators revert to type and avoid structural action in a co-operative way," Marco Mazzuchelli, now a senior adviser to Swiss bank Julius Baer, told the FT. He said that the Liikanen rules would have prevented the build-up of risk at Italy's Monte dei Paschi di Siena -now an existential threat to the world's oldest bank.
Commenting on David Cameron's controversial speech on European reform last week, and the British minister's promise of a referendum on EU membership, Mr Barnier said Mr Cameron's points were "important" and "legitimate". But he said there could not be an "A la carte" Europe on offer for Britain. "I want Britain on board because [you] have the City [of London]," he said.
