Saturday

21st Oct 2017

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The two had been separated until 1999, when US president Bill Clinton repealed the law dating back to 1933 which had prohibited savings banks to do risky investments.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.

Macron puts trade policy on summit table

France's president wants a "political discussion" on EU trade policies at Thursday's summit, amid domestic concerns over Canada and South America deals. But his colleagues are likely to avoid a lengthy debate.

News in Brief

  1. Rajoy to trigger Article 155 on Saturday in Catalan crisis
  2. EU conducts unannounced inspection of German car firm
  3. Lithuania calls for new EU energy laws
  4. EU leaders aim for December for defence cooperation
  5. Juncker says hands tied on Russia pipeline
  6. Czechs set to elect billionaire Andrej Babis
  7. Italian regions hold referendums on more autonomy
  8. EU leaders refuse to mediate Catalonia conflict

Stakeholders' Highlights

  1. European Friends of ArmeniaEU Engagement Could Contribute to Lasting Peace in Nagorno-Karabakh
  2. UNICEFViolence in Myanmar Driving up to 12,000 Rohingya Refugee Children Into Bangladesh Every Week
  3. European Jewish CongressEJC Applauds the Bulgarian Government for Adopting the Working Definition of Antisemitism
  4. EU2017EENorth Korea Leaves Europe No Choice, Says Estonian Foreign Minister Sven Mikser
  5. Mission of China to the EUZhang Ming Appointed New Ambassador of the Mission of China to the EU
  6. International Partnership for Human RightsEU Should Seek Concrete Commitments From Azerbaijan at Human Rights Dialogue
  7. European Jewish CongressEJC Calls for New Austrian Government to Exclude Extremist Freedom Party
  8. CES - Silicones EuropeIn Healthcare, Silicones Are the Frontrunner. And That's a Good Thing!
  9. EU2017EEEuropean Space Week 2017 in Tallinn from November 3-9. Register Now!
  10. European Entrepreneurs CEA-PMEMobiliseSME Exchange Programme Open Doors for 400 Companies Across Europe
  11. CECEE-Privacy Regulation – Hands off M2M Communication!
  12. ILGA-EuropeHealth4LGBTI: Reducing Health Inequalities Experienced by LGBTI People

Latest News

  1. The mysterious German behind Orban's Russian deals
  2. Mogherini urged to do more on Russian propaganda
  3. Turkey funding cuts signal EU mood shift
  4. Posted workers top EU agenda This Week
  5. Leaders lobby to host EU agencies at summit's margins
  6. Legal tweak could extend EU control on Russia pipeline
  7. Ukraine language law does not harm minorities
  8. EU begins preparations for Brexit trade talks