Brussels, 28/01/2015 (Agence Europe) - The Latvian Presidency of the Council of the EU has suggested a risk-based concept, which would allow the supervisors sufficient latitude to identify the banking institutions which would be obliged to separate their retail activities from their investment activities.
“Virtually all member states” consider the metrics in the Commission's proposal for evaluating the investment banking activities to be “ill-suited for assessing trading risk and deciding on separation”, the Latvian Presidency notes, in a working document dated 19 January. Furthermore, the member states have expressed “serious concerns” about the fact that the initial proposal does not provide sufficient clarity regarding the identification of the banking groups which would be obliged to restructure their activities and do not agree to leave such a key element to be decided by the Commission through a delegated act.
Latvia proposes to categorise EU banking groups into three 'zones': - green zone: banks for which systemic risk is under control would face enhanced supervision and would have to set in place strict internal controls to make sure they remain in this category; - yellow zone: banks representing no systemic risk in principle subject to the adoption of “additional measures” (increased capital requirements, trading desk level restrictions, stricter governance rules and more stringent large exposure rules) as part of a 'toolbox' at the discretion of the supervisor would not be the subject of a separation decision, unless the supervisor deems it necessary; - red zone: banks for which a separation of retail and investment activities would be required in order to control the systemic risk they represent.
With a concept of this kind, the supervisors would have sufficient “flexibility” to place a specific group entity into a different zone from that of the overall group. This principle would take account of the demands of certain member states to exclude very small subsidiaries, the Latvian Presidency argues.
Similarly, banking activities would also be divided into three categories: - white activities: retail banking activities which would be always authorised irrespective of any separation decision; a proposed compromise by the Latvian Presidency extends the list of activities included in the initial proposal; - black activities: the activities which a core credit institution would not be authorised to carry out and which would always have to be transferred to a separate entity specialising in trading in order to be able to remain within the same banking group; - grey activities: retail banking activities not listed in either of the first two categories, but which could be undertaken by a core credit institution if, following an assessment, the supervisor deems that they do not create unacceptable systemic risks.
Two ratios would allow the supervised to trigger additional prudential measures: risk-weighted trading assets/total risk-weighted assets; trading activities/total assets. (MB)