Luxembourg, 18/06/2015 (Agence Europe) - On Friday 19 June, the Ecofin Council will discuss the proposed regulation bringing in structural measures for major European banks with excessive risks in their investment activities (see EUROPE 11290).
A political agreement in principle of the European finance ministers will depend on the attitude of France, which rejected the compromise proposal of the Latvian Presidency on Wednesday. This member state, which legislated on the issue when the Socialist Party came to power in 2012, supports the “risk-based philosophy” of the text on the table. However, France takes the view that the scope of application proposed is “too limited”, as it would cover just “ten banks or so”, according to a European source. Paris is also stressing a question of principle related to the derogation granted to the United Kingdom. “Can we have two different systems within the single market?”, the same source stressed.
After eleven meetings of the expert group of the Council, the Latvian Presidency submitted a final compromise proposal to the member states on Friday 12 June. This proposal does not change the scope of the text tabled by the European Commission, although “additional exclusion from the scope has been provided for, in justified, specific circumstances, in application of the proportionality principle”, Latvia stated in an explanatory document dated Monday 15 June.
The French Banking Federation (FBF) is up in arms against this latest proposal. “It now appears quite clear that only French banks will be affected by the new rules, with the exception of two or three others in continental Europe”, the organisation complained in a press release (our translation). It spoke out against the derogation granted to the United Kingdom, which is expected to be “total”, as banks applying the 'Vickers' banking law from 2019 will be fully exonerated from applying the European rules. The organisation argues that this derogation is “unacceptable” from a competition point of view and conflicts with the objective of standardising the European rules. The FBF also criticised the recent introduction of a “lower threshold of 35 billion euros in 'retail' deposits or 3% of 'retail' deposits out of the whole balance sheet”, which would release “major American finance and business banks” with their European headquarters in the City of London from all of the obligations.
The Latvian compromise divides the major European banks into two groups ('Tier 1' and 'Tier 2') on the basis of a threshold of €100 billion of trading activities calculated as worldwide activities for EU parent groups, or activities in the EU for non-EU parent groups. Whilst being simple, transparent and inspired by the findings of the 'Liikanen' report, this methodology implicitly incorporates elements of risk, the Latvian Presidency explains.
Two options. The member states would have two regulatory options to prevent excessive risks from 'Tier 2' banks' investment portfolios from having harmful effects on retail banking activities. The first option would be to apply national rules to ring-fence retail activities, where these exist. This provision is tailor-made for the UK. The second option would be to apply the rules laid down in the future regulation. In a departure from the Commission's initial text, the Latvian Presidency's proposal gives the supervisor the choice between “the requirement to separate excessively risky activities, the increase in a core credit institution's own funds requirements and other prudential measures (or a combination of all of them)”.
Lastly, the member states, which recognise the “benefits of 'market-making'”, seem to be moving towards an obligatory separation of proprietary trading for banks covered by the future regulation, whilst the Commission was in favour of simply banning the practice. Although it was unable to agree on a position on this dossier, the economic and monetary affairs committee of the European Parliament basically seems to be singing from the same hymn sheet as the Commission (see EUROPE 11322).
It is worth noting that the EP's team of negotiators, whose mandate has been renewed, will meet at the end of this month or early July to see whether a swift political compromise is possible on this dossier, which has greatly shaken the 'grand coalition' of the EPP and S&D groups. (Mathieu Bion)