Brussels, 11/06/2014 (Agence Europe) - The chair of the ECB's supervisory board, Danièle Nouy, does not think that strict separation of bank activities (retail and investment) will necessarily reduce risks to financial stability.
“This is only my own view, not the ECB's view, which is not fully finalised, but I have mixed feelings about the separation of banks' activities. I see the pros, but I also see the cons. For example, when you separate a bank into two parts you run significant operational risks. Is taking on that operational risk compensated for by more security, for example, regarding market risks? I'm not sure”, said the former head of bank supervision at Banque de France in an interview on Wednesday 11 June with Finnish newspaper Kauppalehti.
Nouy said: “We need to have the risky operations within the perimeter of supervision. Pushing the problems outside of the regulated perimeter is not a solution. The hedge fund Long-Term Capital Management (LTCM), which brought the financial world into trouble in the 1990s, was not a regulated bank, but we still came close to some banks very seriously hit by LTCM”. (MB)