Brussels, 30/10/2015 (Agence Europe) - The European Parliament rapporteur on bank structural reform, Gunnar Hökmark (EPP, Sweden), and the negotiator for the S&D group, Jakob von Weizsäcker of Germany, reached agreement on Wednesday 28 October on the controversial issue of bank structural reform five months after the economic and monetary affairs committee rejected an initial draft amendment to the draft regulation.
A parliamentary source from a political group involved in negotiating the agreement told this newsletter it was an informal compromise and was a necessary but not sufficient condition for winning the EP committee's approval. Hökmark and von Weizsäcker will each refer the matter to their political groupings and informal talks will begin in mid-November with all the other political groups before a decision is taken about the holding of a new vote at the EP committee, possibly later this month (see EUROPE 11382).
Unveiled by the Barroso Commission in early 2014, the legislative proposal aims to avoid excessive risks taken on the marketplace by a big European bank jeopardising the bank's retail arm. Under the agreement reached by the two MEPs, some very big European banks identified by means of thresholds would be required to provide to the bank supervisor in their country that their trading is not excessively risky. If they fail to demonstrate this, they would be given a year to comply and would be assessed again at the end of that period.
If they fail a second time, the supervisor would have the choice between: - demanding a separation of trading and retail banking; - introducing a significant rise in capital requirements. It would be for the European Commission with the opinion of the European Banking Authority (EBA) to decide how large the increase in capital would have to be.
The measure would only apply to banks meeting one of the following criteria: 40% of total balance sheet made up of non-bank loans, at least 30% of income derived from investment banking, 15% of the balance sheet made up of derivatives. In practice, this means: Barclays, Deutsche Bank, BNP Paribas, Société Générale and possibly Commerzbank and Crédit Agricole. Subject to the Vickers law, the British bank, Barclays, would, however, be exempt from this measure. Belgian bank ING might possibly be covered by it.
Some at the European Parliament criticise the compromise as lame and amounting to the EPP abandoning its position and joining the ranks of the 'grand coalition' formed by the S&D group under pressure from the president of the EP committee, who wants the controversial question to be voted through at the committee stage, even if the compromise ends up being scuppered at the inter-institutional talks with the EU Council of Ministers. They question the utility of stigmatising such a small number of eurozone banks. The source communed that there are unhappy people in Paris and Frankfurt, but it is precisely those banks that have the most non-retail bank activity and the bigger the bank, the more systemic it is and the more the public takes interest in what one is up to. “That's life!” said the source.
Proprietary trading. The Council recommends making proprietary trading a subsidiary in its own right, but the Hökmark/von Weizsäcker compromise prohibits proprietary trading for banks meeting one of the following criteria: total balance sheet of at least €30 billion, trading representing more than €70 billion or more than 10% of the balance sheet. British banks and the subsidiaries of US banks registered in London would be included. (Original version in French by Mathieu Bion)