The Business Times

EU may ditch plan to separate bank trading activities

Published Fri, Dec 5, 2014 · 11:11 AM

[LONDON] The European Union may ditch plans to force banks to keep high-risk trading activities separate from their main businesses because of opposition from some member states.

European commissioner Jonathan Hill said in a letter to senior commissioner Frans Timmermans there was a need to see how much progress could be made on the plan to force banks to separate out risky trading to avoid contagion and shield customer deposits if things go wrong.

The controversial measure has become bogged down amid concerns among some member states and the European Central Bank that it could harm market-making in securities that help raise funds for the economy.

Britain, Germany and France, which represent much of the bloc's banking assets, are already introducing similar, national measures to mitigate bank trading risks.

Scrapping the EU plan "could be an option next year if member state support does not pick up", Mr Hill said in the letter seen by Reuters. A revision of occupational pensions rules, which has also languished, could also be scrapped.

"I have concluded that it would be premature to withdraw either proposal now," Mr Hill said.

The European Parliament, which has joint say with EU states on draft laws, has often taken a harder line on banks and would likely oppose scrapping the draft law outright.

Mr Hill would face accusations that as a Briton he was siding with banks in London, which say the measure would harm markets.

Nevertheless, a draft law on investor compensation schemes should be scrapped, Mr Hill said.

Going further than his French predecessor Michel Barnier, he will also ask for an analysis on the cumulative impact of all EU rules since the 2007-09 financial crisis.

Banks have long demanded such a study, believing it will back their case that the welter of rules since the crisis make it expensive to feed credit to the bloc's sluggish economy.

Mr Hill's core aim is to set up a capital markets union (CMU) to help markets raise funds for companies and wean the region off its reliance on banks.

He will consult in the first quarter of 2015 on CMU and publish an action plan in the third quarter, along with pre-legislative proposals on lighter capital treatment of covered bonds.

A sharp focus on deepening consumer and retail aspects of the bloc's single market was also a key priority.


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