The report on reforming the
structure of the banking sector across the European Union single market was
presented to EU Financial Services Commissioner Michel Barnier, and could be
taken up in legislative proposals.
"This report will feed our
reflections on the need for further action," Barnier said in a statement.
"I will now consider the next steps, in which the Commission will look at
the impact of these recommendations."
The conclusions by the group of
banking specialists chaired by Bank of Finland governor and ex-European
Commissioner Erkki Liikanen were published a day before the European Banking
Authority issues its final report on banks' implementation of plans to
establish temporary capital buffers.
More widely, it was released as
European leaders argue over how fast to progress towards eurozone and EU
banking-market integration, and how deep that should go -- a technical debate
caught up in political disagreement over bailout solidarity among key eurozone
governments.
The experts said the
Commission's proposed Bank Recovery and Resolution Directive -- one of three
key spokes identified in so-called "banking union" alongside
cross-border deposit guarantees and top-down supervision -- was "an
essential part of the future regulatory structure."
Of the key recommendation for
legal separation of activities, Liikanen said in a letter summarising
conclusions: "The analysis conducted revealed excessive risk-taking --
often in trading highly-complex instruments or real estate-related lending --
and excessive reliance on short-term funding in the run-up to the financial
crisis.
"The risk-taking was not
matched with adequate capital protection, and strong linkages between financial
institutions created high levels of systemic risk."
Despite some members advocating
a softer approach, he said "the group's conclusion is that it is necessary
to require legal separation of certain particularly risky financial activities
from deposit-taking banks within a banking group."
The aim is to ring-fence the
"socially most vital parts" of the banking system, namely deposit-taking,
"and to limit the implicit or explicit stake of (the) taxpayer in the
trading parts of banking groups."
He said this would itself
"facilitate market discipline and supervision and, ultimately, recovery
and resolution."
Liikanen suggested that this would
not be required unless more than 15-25 percent of banks' trading activities
were in the high-risk sector, or that volumes were worth less than 100 billion
euros.
There are about 8,000 banks
across the EU.
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