Monday

21st May 2018

Banks should separate deposits from risky trading, group says

  • Belgium's Dexia bank was bailed out twice by taxpayers. It is now called Belfius. (Photo: Valentina Pop)

An expert group advising the EU commission on Tuesday (2 October) said banks in Europe need to separate their entities dealing with deposits from those trading with risky investments, in order to prevent a re-run of the 2008 financial crisis.

"We have to end this system where profits are private and costs are public," Finland's central bank chief Erkki Liikanen and former EU commissioner said during a press conference when presenting the results of his expert group, comprising academics, bankers and consumer rights advocates.

Thank you for reading EUobserver!

Subscribe now for a 30 day free trial.

  1. €150 per year
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

The group had been tasked by EU financial services commissioner Michel Barnier last November to come up with proposals which may result in new legislation.

Barnier said he will immediately start a six-week public consultation on the report, after which he would proceed with "calibrating" the proposals into a draft bill.

The main and most controversial of the five proposals within the Liikanen report is to separate banks' activities dealing with people's savings from investing in risky financial products.

The two had been separated until 1999, when US president Bill Clinton repealed the law dating back to 1933 which had prohibited savings banks to do risky investments. The consequence was a blossoming of complex and risky bets - the so-called derivatives - into a multi-trillion market that grew far bigger than the traditional markets where people buy and sell products, stocks or currency.

Bets on the real estate market in the US that were sold all over the world as part of packaged and re-packaged investments blew up in a major financial crisis in 2008, followed by a global economic crisis and now the euro-crisis.

But banks resist the move to prevent them from tapping on people's savings when conducting profit-making business and warn of capital freeze and the risks of doing such radical moves at times when the economy badly needs financing.

Even within the Liikanen group, views diverged. In the end, the proposal says that while separating the two activities, they can still remain within the same banking group. In addition, separation would only occur when more than 15-25 percent of the bank's trading activities were high-risk.

Within the European Parliament, British MEP Sharon Bowles who chairs the economics committee said that there is "some resistance" to separating banks' activities. "But I maintain it is still the case that such plans need to be in place at an early stage, and then reinforced with subsequent proposals," she said in an emailed statement.

But to people dealing with banks' balance sheets on a daily basis, the Liikanen proposals risk causing more damage than good.

“We are not convinced that any of these proposals have a sound basis. It is doubtful whether it is possible to identify types of banking which are not important or are especially risky," the international association of accountants (ICAEW) said in a press release.

Brussels: 'Banks should pay for banks'

The EU commission has unveiled proposals to change the too-big-to-fail rationale that has seen billions of euros of public money pumped into ailing banks.

EU reaches deal to protect bank savings

EU lawmakers have agreed the first €100,000 of savings per depositor and per bank will be guaranteed if the bank gets into difficulty.

Commission 'playing tricks' with EU budget figures

The EU parliament's budget rapporteur complained the Commission is using numbers with a "desire to confuse". According to parliament estimates, the cohesion fund could suffer as much as a 45 percent cut.

Analysis

EU has no 'magic bullet' against US Iran sanctions

EU leaders in Sofia will discuss how they can protect the bloc's economic interests against US threats to sanction companies doing business in Iran. But their options are limited.

Opinion

EU budget must not fortify Europe at expense of peace

Given the European Commission new budget's heavy focus on migration, border management and security, many are asking whether the proposal will fortify Europe at the expense of its peace commitments.

News in Brief

  1. Trump warns Nato allies' low budgets will be 'dealt with'
  2. Only Estonia, Greece and UK hit Nato spending target
  3. EU to start process to counter US Iran sanctions
  4. Macedonia PM sees 'possible solutions' in Greek name row
  5. EU takes six countries to court over air pollution
  6. New Catalan leader sworn in without reference to Spain
  7. Merkel and Putin revive dialogue in troubled times
  8. European companies putting Iran business on hold

Stakeholders' Highlights

  1. Nordic Council of MinistersOECD Report: Gender Equality Boosts GDP Growth in Nordic Region
  2. Centre Maurits Coppieters“Peace and reconciliation is a process that takes decades” Dr. Anthony Soares on #Brexit and Northern Ireland
  3. Mission of China to the EUMEPs Positive on China’s New Measures of Opening Up
  4. Macedonian Human Rights MovementOld White Men are Destroying Macedonia by Romanticizing Greece
  5. Counter BalanceControversial EIB-Backed Project Under Fire at European Parliament
  6. Nordic Council of MinistersIncome Inequality Increasing in Nordic Countries
  7. European Jewish CongressEU Leaders to Cease Contact with Mahmoud Abbas Until He Apologizes for Antisemitic Comments
  8. International Partnership for Human RightsAnnual Report celebrates organization’s tenth anniversary
  9. Nordic Council of MinistersNordic Cooperation Needed on Green Exports and Funding
  10. Mission of China to the EUPremier Li Confirms China Will Continue to Open Up
  11. European Jewish CongressCalls on Brussels University to Revoke Decision to Honour Ken Loach
  12. Sustainable Energy Week 2018"Lead the Clean Energy Transition"- Register and Join Us in Brussels from 5 to 7 May

Latest News

  1. Athens mayor wants direct access to EU migration fund
  2. Nordics could be first carbon-negative region in world
  3. Zuckerberg and Trump top the EU's agenda This WEEK
  4. Integration of Syrian refugees in Europe needs scrutiny
  5. Bulgarian PM: No asylum reform without stronger border
  6. Eight countries to miss EU data protection deadline
  7. Italian populists to defy EU debt rules
  8. Commission 'playing tricks' with EU budget figures