The European Commission’s proposal for a banking structural reform (BSR or Regulation on structural measures improving the resilience of the EU credit institutions), the so-called Barnier Proposal, is one of the missing pieces of European banking regulation following the global financial crisis. It is a necessary element of overall financial regulation to address systemic risk and reduce the probability of another financial crisis. In essence, the goal of the proposal is to separate market-related activities (also known as investment banking) from the traditional lending activities (deposits, loans and payment system) of the largest European banks. This should allow the newly established Banking Union to work without public intervention in a crisis.
In Finance Watch’s view, although the EU proposal would take a step in the right direction to address the Too-Big-To-Fail (TBTF) issue, it should be stronger and further reaching to be efficient, reach its objectives, and refocus banks on the real economy. However, having in mind recent developments at the EU level and several legislative initiatives undertaken by Member States, we fear that the major goal of the regulation will not be fulfilled.
We have invited guest bloggers from various Member States to share their national perspectives on banking structural reforms pursued by their countries and at European level, and share their views as voices of civil society on the issue. As this series will illustrate, some national governments and politicians in Brussels are trying to oppose or water-down the proposal for a variety of reasons. Some hope for weaker regulation that will benefit their national banks (at the expense of systemic safety), while others fail to recognise the risks of having an inconsistent legal framework to regulate the interconnected cross-border financial system.
As the proposal is currently being debated by the co-legislators, the European Parliament and the Council of the European Union, we hope that this series of blogs will be a timely contribution to the debate, while highlighting the need for civil society and policy makers to take action so the regulation goes in the right direction.
Follow the debate on Twitter: #SplitMegaBanks
Here are the first articles, more will follow in the coming weeks:
Dominique Plihon is a French economist, spokesperson of Attac France (Member of Finance Watch) and co-author of the recently published "Livre Noir des Banques". His blog contribution reminds us of the weakness in the French banking law and highlights the reasons for adopting such a low-impact regulation. More importantly, he sheds light on how the French approach to the issue of structure of banks is threatening the European regulation. Read the full article (in French)...
As an example of why EU bank structural reform is needed, the case of the former Austrian bank Hypo Alpe-Adria comes at the perfect time. Difficulties at the bank's comparatively small 'bad bank', HETA, are causing ructions in the financial system across national boundaries. Thomas Zotter from the Department of Economics and Statistics at the Austrain Chamber of Labour takes a closer look. Read the full article (in German)...
France and Germany
Iain Hardie and Huw Macartney present here the outcome of their research on the political process that led to the European proposal for a structural reform of banks, sheding light on the role played in particular by France and Germany in the process. As lecturers in International Relations at the University of Edinburgh and in Political Economy at the University of Birmingham respectively, they provide us with a political perspective on the debate and its possible outcome, and show how the defense of national champions has been predominant in the policy making process... Read the full article
Compared to its neighbours France and Germany, Belgium passed a far more ambitious banking reform. However, as the contribution by Rosa Stucki from the Finance Watch member organisation Réseau Financité and Frank Vanaerschot from the NGO Fairfin will illustrate, the reform still falls short of guaranteeing systemic safety leaving many exceptions and loopholes, which is why the authors stress the need for ambitious reform at European level... Read the full article
German policy-makers have passed preemptive legislation on banking structure with the aim of influencing the direction in which the EU should go. Christian Ahlers from the consumer organisation “Verbraucherzentrale Bundesverband” (vzbv, a Finance Watch member) argues that the German reform is not well equipped to protect citizens and consumers. He warns that regulatory arbitrage and nationally fragmented supervisory approaches have in the past allowed the financial industry to bend existing rules, and this played a role in allowing the last crisis to happen... Read the full article
Our contribution from Italy by Andrea Baranes from the Finance Watch member organisation Fondazione Culturale Responsabilità Etica brings a view from a country that should have a strong interest in banking separation, yet politicians are reluctant to pursue the issue. The author describes the political standstill during Italy’s Council Presidency and argues that Italy’s failure to push the proposal during this period was a missed opportunity for Italy, which could only gain form banking structural reform... Read the full article
Thomas Lines, a British consultant and former journalist and lecturer, says the mandatory separation of retail and ‘casino’ banking would improve financial stability by discouraging wholesale funding and bank interconnectedness. He argues that the EU and UK bank structure reforms should go further by encouraging banks to engage in more economically useful activities..... Read the full article