A high-level expert review has called for banks to separate risky investments from retail activities.
Banks in the European Union should separate their risky investment
activities from the retail side of their business, a high-level expert review
group has told the European Commission today.
The group, headed by the president of Finland's central
bank, Erkki Liikanen, said that the ring-fencing of risky activities would
protect consumers and the financial system from the sort of turmoil seen in the
financial industry over the past few years.
In a statement Liikanen said that, under the group's
plan, “deposits, and the explicit and implicit guarantee they carry, would no
longer directly support risky trading activities”.
Banking sector analysts say that rules to ensure that retail banking operates
separately from riskier trading activities would protect the bank's ordinary
savers if parts of the institution collapsed.
If the measures proposed by the independent review panel
were implemented it would represent a radical overhaul of the EU's banking
sector, but there is little indication that Michel Barnier, the European
commissioner for the internal market and services who ordered the independent
review, is in any rush to push through new legislation.
He said that the Liikanen report would “feed our
reflections on the need for further action”.
He added: “I will now consider the next
steps, in which the Commission will look at the impact of these recommendations
both on growth and on the safety and integrity of financial services.”
The group also said that it supported bank
‘bail-ins', an idea already being pursued by the Commission that would force
bondholders to pay for a bank collapse, rather than taxpayers having to foot
the cost of a ‘bail-out'. The panel said bankers' bonuses should be given as
bonds with these conditions.
The Liikanen proposals are similar to
those proposed in the UK by the Vickers report and in the US by the Volcker
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