Draft ECON report would make bank structure reform ineffective, says Finance Watch

Brussels, 8 January 2015 - The European Parliament's draft report on bank structure reform, published yesterday, would hollow out the Commission's proposal on bank structure reform and leave it as an ineffective shell regulation, warned Finance Watch, the public interest advocacy group working to make finance serve society.

Paulina Przewoska, senior policy analyst at Finance Watch, said:

"It is hard to believe that the structure of the EU's too-big-too-fail megabanks would be improved as a result of this text."

The European Parliament's rapporteur on bank structure reform, Gunnar Hökmark (EPP, Sweden), yesterday published his draft report on the Commission's proposal for a regulation on structural measures improving the resilience of EU credit institutions. He proposes 90 amendments, including changes that would substantially weaken the objectives, scope, definitions, mechanism and sanctions in the Commission's original proposal. The justification provided is that universal banks play an important role in financing commercial investments.

Christophe Nijdam, Secretary General of Finance Watch, said:

"Universal banks are not the problem; 'too-big-to-fail' banking is. It distorts incentives so that Europe's megabanks are more focused on financial trading than on financing commercial investments. Effective structural reform would free megabanks' lending operations to focus on serving the real economy. It would also make the banking sector more competitive for other banks. For the sake of the EU's economy, we urge MEPs to back an effective proposal not an ineffective one."

Specifically:

1) The proposed amendments would result in a shell regulation at European level. It would build on national regulations and allow national discretion to undermine the single rulebook and single market. The rules on derogation lack clarity and would hamper market confidence.

2) The report would alter the scope so that the thresholds that decide when the regulation applies would be based on banks' risk-weighted exposures. This could result in fewer institutions being covered and cause the proposal to inherit all the Basel/CRD IV shortcomings, including overreliance on risk weights and internal models.

3) The proposed changes to the mechanism mean that in cases where the metrics (used to decide on the riskiness of trading activities) are met, only a threat to the resolvability of a particular credit institution could lead to supervisory action, rather than a general threat to financial stability. This would result in a microprudential focus when a macroprudential one is needed. The report also allows the supervisory action to be downgraded to enhanced supervision or higher capital requirements, instead of a separation of trading activities.

4) The report would significantly weaken the rules on extra-group large exposures. These rules were supposed to decrease interconnectedness and the concentration of risks among core credit institutions after separation.

 

ENDS

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NOTES

  • The draft report can be downloaded here.
  • The Commission's original text and other documents can be found here.