Friday

20th Jan 2017

Barnier launches EU bid to ban risky bank trades

  • Barnier - Banks should be banned from riskiest trading

The EU's biggest banks could be banned from speculative trading, under legislation proposed on Wednesday (29 January) by the European Commission.

EU financial services commissioner Michel Barnier told reporters that so-called proprietary trading, where banks bet exclusively with their own money rather than customers, would be outlawed.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

The practice is often highly profitable for institutions but lawmakers say it serves neither clients or the health of the European economy.

Although proprietary trading now only accounts for a small amount of banking activity, it was used to create the market in sub-prime mortgage loans which led to the financial crisis in 2008-9 and, consequently, publicly funded bank bailouts totalling around 13 percent of the EU's GDP.

The rule, which is similar to the so-called 'Volcker rule' which now applies in the US, would apply to around 30 of the bloc's 8,000 banks which together cover around 65 percent of the total banking assets in the EU.

It would also cover banks which have total assets exceeding €30 billion, and that have total trading activities exceeding either €70 billion or 10 percent of their total assets. Twenty-three EU-based banks are in the world's top 50 largest institutions according to Global Finance magazine.

The rules were "the last component in a raft of new regulation," said Barnier, referring to a flow of legislation which has seen more than thirty EU bills aimed at financial markets adopted since 2009.

"We still have concern about some of Europe's largest banks," said Barnier, adding that the proposals were aimed at institutions he described as "too big to fail, too costly to save and too complex to resolve."

However, the draft law steers away from requiring the separation of the standard deposit-based services and the riskier investment arms of banks as recommended in an advisory report for the commission published in 2012.

Instead, national supervisors would be given the power to transfer high-risk trading activities such as derivatives and mortgage securitisation by banks into separate subsidiary firms.

"Our proposal does not rule out the model of the universal bank," noted Barnier.

The commission hopes the ban on proprietary trading could come into force in 2017 followed by the separation rules in 2018.

However, the plans face opposition on a range of fronts, including from governments, and the banking sector, as well as a race against time.

Both France and Germany have warned that the proposals are weaker than reforms they have made at national level. "I consider the ideas he has proposed irresponsible and contrary to the interests of the European economy" said Christian Noyer, governor of the French central bank.

For its part, the UK, which is opposed to a ban on proprietary trading, offered a more conciliatory response.

Barnier's plans had "much in common with the banking reforms the UK has pioneered and have been designed to allow the UK to go ahead with full implementation of its reforms," a UK government spokesperson commented.

Meanwhile, the timing of the proposal, just two months before the EU institutions close ahead of May's European elections, has also caused grumbling among MEPs.

No deal is likely before 2015 and the commission proposal itself could yet be unpicked by Barnier's successor who will take office in the new EU executive in the autumn.

“It would be better to keep it for the new parliament,” said Sharon Bowles, who chairs the Parliament's economic affairs committee.

For his part, Green finance spokesperson Philippe Lamberts said that the EU executive's plan was "some way short" of expectations.

"Despite recognising the problems with banks combining essential day-to-day banking activities and risky investment activities, the proposals will fail to ensure a true separation of these activities," he said, adding that the rules were "seriously undermined by a very restrictive definition of proprietary trading."

Brexit men launch anti-EU website

Westmonster, modelled on hard-right US websites, said it was: "Pro-Brexit, pro-Farage, pro-Trump. Anti-establishment".

News in Brief

  1. Report: Hollande thinking of EU council bid
  2. Italy to hold 70% of Monte dei Paschi bank
  3. Nato hit by 500 cyberattacks every month
  4. Hundreds of migrants face German security review
  5. Outgoing US vice-president warns Europe on Russia
  6. German far-right party calls for end to WWII guilt
  7. First Chinese freight train arrives in Europe
  8. Europe has no vision, says Italian minister

Stakeholders' Highlights

  1. Caritas EuropaEU States to Join Pope Francis’s Appeal to Care for Migrant Children
  2. UNICEFNumber of Unaccompanied Children Arriving by sea to Italy Doubles in 2016
  3. Nordic Council of Ministers"Nordic Matters" Help Forge Closer Bonds Between the UK and the Nordic Region
  4. Computers, Privacy & Data ProtectionThe age of Intelligent Machines: join the Conference on 25-27 January 2017
  5. Martens CentreNo Better way to Lift Your Monday Blues Than to Gloss Over our Political Cartoons
  6. Dialogue PlatformThe Gulen Movement: An Islamic Response to Terror as a Global Challenge
  7. European Free AllianceMinority Rights and Autonomy are a European Normality
  8. Swedish EnterprisesHow to Create EU Competitiveness Post-Brexit? Seminar on January 24th
  9. European Jewish CongressSchulz to be Awarded the European Medal for Tolerance for his Stand Against Populism
  10. Nordic Council of Ministers"Adventures in Moominland" Kick Off Nordic Matters Festival in London
  11. PLATO15 Fully-Funded PhDs Across Europe on the Post-Crisis Legitimacy of the EU - Apply Now!
  12. Dialogue PlatformInterview: Fethullah Gulen Condemns Assassination of Russian Ambassador to Turkey

Latest News

  1. 'Be patient,' ECB chief tells Germany
  2. EU cannot copy Australia's offshore asylum model
  3. Brexit men launch anti-EU website
  4. Germany details its 'Marshall Plan' for Africa
  5. IMF predicts 'pain' for UK, as banks prepare London exit
  6. EP deal could help Tusk keep Council job
  7. UN struggles to monitor fate of readmitted Syrians in Turkey
  8. European space chief: Moon village is 'more or less a fact'