Brussels, 22/05/2015 (Agence Europe) - Scheduled for Tuesday 26 May, the vote at the European Parliament's Economic and Monetary Affairs Committee on the draft regulation to reform the structure of big banks looks like it will be very tight.
An EP source explained on Friday 22 May that the situation was quite confusing. Three draft compromises are fighting for dominance. The first, defended by rapporteur Gunnar Hökmark (EPP, Sweden), is backed by the EPP, ALDE and ECR. The second is defended by the social democrats, and the third by the Greens/EFA, GUE/NGL and M5S MEPs from the ELDD group.
Given the balance of power, there is a danger that the version that the EP committee will adopt will have a very weak majority and thus reveal the EP as divided, which would make it difficult for the EP to have a strong position in talks with the Council of the EU during the future inter-institutional negotiations. If this is the scenario that plays out on Tuesday, rapporteur Hökmark is reported to be prepared to ask the EP plenary to decide on its negotiating position in July, when he would hope to gain a stronger majority.
The most likely scenario is that the Hokmark report is backed by a slender majority, explained Belgian MEP Philippe Lamberts, co-president of the Greens/EFA group, to this newsletter, pointing out that there is the danger that the European Commission would end up withdrawing the legislation. The first EP source said that if nothing was forthcoming from the EP, then there was the danger that the legislation would be buried, but EU rules are needed to ensure coherence within the Single Market. Several countries, Germany, Belgium, France and the United Kingdom, have already introduced their own rules.
Should speculation be automatically hived off?
The political wheeling and dealing focuses on the parameters to identify banks covered by the legislation whose riskiest investment could jeopardise the safety of high street banking. The political groups are divided about how to deal with the banks, once identified: should the EU introduce automatic hiving off of speculation in order to keep risky investment separate from high street banking, or should supervisory bodies be given the task of deciding on the best measures to take, one of which would be the hiving off of different types of banking?
Closer to the way the talks are going within the Council of Ministers (see EUROPE 11287), the draft compromise drawn up by the EPP, ALDE and ECR recommends an approach based on the type of risk in question. It has added a criterion to the parameters to identify banks doing over-risky speculation, a criterion related to the pay structure for traders and other quantitative criteria recommended by the ECB. It did not take up an amendment tabled by Sylvie Goulard (ALDE, France) calling for the supervisory body to deal with sovereign debt risks. On the question of the separation of different types of banking, the three groups go in the direction of leaving it for the competent supervisory body to decide on the best measures to take. A source said that they trusted the supervisory body to decide on the risk involved and if it felt that the bank's activities needed to be separated, then it would be able to do this. Other potential measures include additional capital requirements and a ban on certain types of business.
The other two draft compromises drafted by political groups mostly on the left of the political chess board recommend automatic hiving off of retail and investment banking if excessive levels of risk are taken. The draft compromise drawn up by the S&D is said to give a choice between separation and introducing further capital requirements to the tune of 3%, but its critics say that opting for the choice of extra capital requirements would amount in practice to a separation. It is whispered that some social-democrat MEPs are not happy with the extremist approach taken by German MEP Jakob von Weizsäcker, who wants automatic structural reform of the banks in question.
Debate at the Greens/EFA has the merit of being clear. Lamberts criticises the way that the separation of banking activities is no longer seen as a political priority: conservative and liberal MEPs openly reject the need for such a reform; the socialist group is divided on the issue and its extremely soft negotiating position leaves not opportunity at all for bank separation. The socialists have been called to join the camp of those promising genuine bank separation in order to defeat the European right's strategy of getting the draft legislation bogged down.
All the political groups recommend (though to varying degrees) a ban on proprietary trading. (Mathieu Bion)