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PwC study says planned EU bank trading curbs harmful

[LONDON] European Union plans to curb risky trading at banks would make it more expensive to raise funds for the bloc's flagging economy, a study commissioned by a banking lobby said on Thursday.

The EU's European Commission has proposed structural changes to ban banks from taking bets on markets, also forcing them to isolate risky trading like financial derivatives to improve their resilience to shocks.

"However, the proposed bank sector structural reforms, applied across the whole sector, risk draining vital liquidity from EU capital markets, a development which is increasingly being raised as a concern by central banks," the PwC study for the Association for Financial Markets in Europe (AFME) said.

"Such an outcome would be at odds with the policy goal of creating deep, liquid capital markets capable of supporting higher levels of growth across the Union." PwC said the benefits from the draft EU law were unclear and estimated that the reform would affect 45 banks, including Barclays, BNP Paribas, Deutsche Bank and RBS.

The cost of debt financing for companies could rise by a quarter on average or 5 billion euros across the EU, with asset managers and investors having to pay more to trade in corporate debt, the study said.

Structural separation of trading will cut the number of viable EU capital market banks as they decide to pull out of market making, thus increasing industry concentration and costs for users, the 96-page study concluded.

Banks are hoping the bloc's new financial services chief Jonathan Hill will ditch the draft measure as countries like Britain, Germany and France are already introducing curbs on risky trading at banks.

A core plank of Hill's five-year term is to set up a capital markets union to boost market-based finance for Europe's cash-starved companies as banks rein in lending.

The European Central Bank said last Friday it was concerned that the planned EU measure could curb market making that is useful for the economy.