Bloomberg: separating EU investment and retail banking may not be necessary

Updated on October 29, 2015 — 2:32 PM EDT
Bank Separation May Face Higher Hurdles in EU Lawmakers’ Deal

Breaking up European Union banks would be tougher under a compromise reached by lawmakers from the two biggest groups in the European Parliament setting out rules to split up banks that mix trading activities with deposit-taking. They have also agreed to an EU-wide ban on proprietary trading.

The deal, which still needs plenary approval, gives banks more leeway to prove that they don’t pose a systemic risk than do previous proposals, and allows regulators to impose a capital increase as an alternative to a breakup, according to lead legislator Gunnar Hoekmark from the conservative European People’s Party, who struck the deal with his counterpart from the Social Democrats, Jakob von Weizsaecker. The final wording of the pact is yet to be published.

“The competent authority may decide on a capital add-on in order to have a better capital coverage, or ultimately a separation, but that is a final resource,” Hoekmark said in a telephone interview. “There is no automaticity.”

After the European Commission, the EU’s executive arm, presented a draft bank-structure plan in early 2014, approval of the law has eluded consensus in Parliament until now. The Commission’s proposal would have made separation of investment and consumer banking automatic once the firms were found to exceed certain levels of trading and risk-taking, with some limited room for supervisors to grant an exception.

The full article is available here.

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