Brussels, 31/01/2013 (Agence Europe) - Speaking on Thursday 31 January 2013 at the 11th European Financial Services Conference (see EUROPE 10775), Erkki Liikanen, Governor of the Bank of Finland, welcomed the French and German suggestions about hiving off trading from retail banking. “Of course, there is a lot of support and opposition. But the fundamental issue is that you can see in the French and German proposals is that you need to somehow separate” the two types of banking. He is pleased that the two biggest eurozone economies have decided to take the bull by the horns, adding that the key question was exactly where one drew the line and whether trading should be done on its own or whether it should include part of all of market-making.
In October 2012, a group of experts chaired by Liikanen issued recommendations on the structure of bank reform in Europe (see EUROPE 10701). Pursuing the idea of subsidiaries, it recommended that the riskiest trading should be hived off in separate legal bodies from retail banking, but remain within the same holding company. This would include OTT trading, market-making, lending to speculative funds, SIV-type structures and private equity fund investments.
Pointing out that the group of experts wants a European solution that will not cause market segmentation, former EU commissioner Liikanen said that during the expert group's nine months it had not been possible to deal with the best way of deciding where the dividing line should fall. He said the important thing in terms of restricting the danger of market collapse was hiving off various activities rather than introducing higher capital requirements for risky trading.
Anxious to preserve the universal banking model, Germany and France want to move forward with the bank reforms without waiting for proposals from EU Internal Market Commissioner Michel Barnier, expected in September. The two countries' plans seem more flexible than those recommended by the Liikanen group.
The financial press reported this week that Germany is planning to isolate over-the-counter trading when it exceeds a €100 billion cap or 20% of a bank's overall balance sheet. German banks would need autorisation for trading for their own customers or market making but would not have to hive this businesss off into a separate subsidiary. The German legislation is reportedly inspired by a draft French law to be examined by the French parliament in mid-February. (MB/transl.fl)