Keeping a tight rein
In October 2011, the European parliament passed a resolution calling for proposals to ring-fence the retail banking activities of systemically important banks and to require them to be capitalised on a standalone basis.
The Expert Group is likely to face a familiar struggle: how to make a recommendation which meets the approval of member states with widely differing traditional views of banking models.
This was followed by an announcement in November 2011 from the European Commission that it was setting up a high-level expert group, to consider structural aspects of the EU banking sector.
The expert group is now undertaking its work and will present a formal report to the EC by the end of summer 2012. It has already published a consultation in the form of a questionnaire, seeking the views of banks, corporate customers and retail customers on the structural reform of banking, including on the US and UK proposals for reform to date.
The group’s mandate calls for it to consider whether there is any need for structural reforms of the EU banking sector and to make any relevant proposals as appropriate, with the objective of establishing a safe, stable and efficient banking system.
The group has been instructed to have regard for ongoing regulatory reform in the EU and globally, paying particular attention to activity restrictions (US Volcker Rule), size limits (Dodd-Frank Act) and structural separation of certain activities (Sir John Vickers’ Independent Commission on Banking report).
Indeed, when Michel Barnier, commissioner for internal market and services, announced the plans to create the expert group he cited the work of the ICB and the Volcker Rule.
He said: “For my part, I am not closed to this idea of separation. That having been said we must be conscious that separation measures always have negative effects on the organisation of entities and their economic efficiency … to go down that road, we must be sure that the gains in terms of financial stability outweigh the costs”.
Commissioner Barnier followed this up in an address to the City at the Guildhall on 23 January this year. While he stressed the need for a single European rulebook, he admitted the UK recommendations could be implemented in a way consistent with EU standards.
He said, “The group will look at the work carried out in the EU and elsewhere. It can be seen as a tribute to the influence of the Vickers Commission in the UK. But – and this is an important but – do not assume that the conclusion of this thinking means reproducing the UK approach to the EU as a whole. I have a very open mind. No one should prejudge the outcome of the group’s work.”
That said, Mr Barnier has also raised concerns about the Volcker Rule: “It would not be acceptable that US rules that have such a wide effect on other nations ... be implemented without any international coordination … a unilateral approach is a path to fragmentation and inefficiency”.