Brussels, 25/05/2012 (Agence Europe) - EU Internal Market Commissioner Michel Barnier made it clear at a press conference at the European Parliament on Friday 25 May 2012, organised by the Greens and European Free Alliance, that the European Union would not be applying exactly the same ideas recommended by the United States and the United Kingdom when it comes to bank reforms. Referring to the plans mooted in the US by Paul Volcker, a financial advisor to President Barack Obama (see EUROPE 10561) and John Vickers, a British economist who chaired the UK's independent committee on enquiry on the banking system (see EUROPE 10500), Barnier said Europe would not simply be importing the Volcker and Vickers plans, but would be examining the full range of options.
The commissioner explained the mandate given to the Liikanen Group that has until October to consider a root-and-branch reform of the banking system in Europe (see EUROPE 10560). It has been instructed to see whether, in addition to the regulatory changes, more structural reforms are needed to provide greater consumer protection, explained the commissioner. If so, it will suggest suitable ways of diversifying risk, strengthening financial stability and ensuring banks do more to boost economic growth. The Liikanen Group is carrying out a public consultation exercise in this connection, which will run until Friday 1 June 2012.
The Volcker Rule, part of the Dodd-Frank Act in the United States, bans banks registered in the US from risky proprietary trading from 1 August 2012 onwards. Volcker explains that the massive injections of taxpayers' money during the financial crisis are an argument in favour of legislation to change the structure of banking. He says that to boost financial stability, stress tests, political pressure and greater capital requirements are useful but will not suffice in themselves. The new US laws will hive off some types of speculation to provide greater protection for high street banking, without forcing banks to set up separate companies for speculation.
Barnier pointed out that under the planned changes to the EU financial derivatives rules (the MiFID II changes), he is suggesting that proprietary trading be banned on the new OTF negotiating system (see EUROPE 10478). He said he shared the view that restricting proprietary trading could be an effective way of reducing the risk of financial meltdown, but said that in the United States, it was proving tricky to strike the right balance and actually get the rules applied in practice and there was a huge danger of the Volcker Rule impacting negatively on other parts of the world, including the European Union. An issue he had raised on his recent trip to the United States.
Sir John Vickers says it will not be enough to simply change the banking system or recapitalise banks (including measures to ensure banks finance the real economy), and the smart way to change banks would be to combine measures to enable banks to absorb losses and boost their capital. In order to protect high street banking, the Vickers Committee suggests ring-fencing essential retail activities like private and corporate deposits to keep them separate from investment banking (trading, market making, derivatives, etc) to avoid contamination of the former by the latter. The ring-fenced high street bank would be able to stand alone, without being totally separate from the parent company. Vickers says the Volcker Rule does not provide all the changes needed for the British banking system.
Michel Barnier says the questions about the Volcker Rule also apply to the Vickers recommendations. He wonders whether separating off retail and investment banking would tackle the risk of meltdown generated by European banks' investment. He said that Vickers is calling for a restructuring of universal banking rather than separation from the way they are currently organised.
The commissioner says any structural reforms of banking in Europe must take account of the huge diversity of existing models, as seen in the geographical spread, range of bank activities and financing models, very large and very small banks, and revenue generation models, not to mention governance and operating structures. This is both a strength and an additional challenge, he said, when it comes to seeking effective solutions to allow the different types of banking to exist and protecting what works well in the European banking system. (MB/transl.fl)