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Single Resolution Mechanism will require strong bank structure reform

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Brussels, 11 July 2013 – Finance Watch, the public interest advocacy group, today published its response to the European Commission’s consultation on a reform of the structure of the EU banking sector. The response calls for a strong proposal to separate trading from credit activities.

  • SRM needs banks to have structures that make them resolvable

  • Finance Watch publishes consultation response on reform of EU banking structure

Download the response here.

Finance Watch’s Secretary General, Thierry Philipponnat, said:

“Given the Commission’s publication yesterday of plans for a Single Resolution Mechanism, we are pleased to publish our response on bank structure today because the topics of bank structure and resolution are closely related.

Experience from the US shows that the activities that make banks too-large, too-complex or too-interconnected-to-fail also make them impossible to resolve without public money, even in a federalised resolution regime. We look forward to studying the SRM proposal in detail and to seeing proposals that will reinforce it by setting out a strong structural reform of the EU’s too-large, too-complex and too-interconnected banks.”

The key points from our response to EC’s consultation on a reform of the structure of the EU banking sector include:

  • Separation will render banks more resolvable in the heat of a crisis.
  • A strong EU proposal will avoid “a race to the bottom” via weak national initiatives.
  • Market making and underwriting are trading activities and should be separated from deposit-taking, along with other capital market activities.
  • The private costs of bank structural reform will bring large social benefits by limiting the cost of future banking crises and reducing the economic distortions caused by bank funding subsidies.
  • Ex-ante bank separation is necessary to achieve the goals of bank structure reform; separation cannot be left to the discretion of national supervisors.

Aline Fares, advisor to the Secretary General and author of Finance Watch’s response to the Commission’s consultation, said:

“We are delighted that EU citizens have joined Finance Watch, our Members and other civil society organisations in responding to the Commission’s recent consultation on bank structure. This collective effort underlines how important the issue is for the public interest. We hope the Commission will move forward in bringing a strong proposal that separates market activities from credit activities and creates confidence that banks can be safely resolved if necessary.”

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For media requests or to interview one of our experts about banking structure, please contact:

Greg Ford, head of communications, on +322.401.8740 or +44 7703 219 222 or greg.ford@finance-watch.org

Charlotte Geiger, communications officer, on +322.401.8741 or charlotte.geiger@finance-watch.org

NOTES FOR EDITORS

In February 2012, the Commission established a High-level Expert Group (HLEG), chaired by Erkki Liikanen, to examine whether possible reforms to the structure of the EU’s banking sector would strengthen financial stability and improve efficiency and consumer protection, and, if so, to make proposals as appropriate. As documented on the Commission’s webpage on banking structural reform, the HLEG presented its final report on 2 October 2012.

The Commission is now examining possible reform options with a view to prepare a follow-up later in 2013, of which this consultation was part. “Consultation: reforming the structure of the EU banking sector” (deadline 11 July 2013).

A key question now for the EC is whether to propose separating nearly all trading, as has been proposed by the Liikanen report and in the UK under the so-called Vickers reforms, or only a very small proportion of trading (mainly proprietary trading), as has been proposed in France and Germany.

To read Finance Watch’s views on the weaknesses of the French reform, see Finance Watch’s proposed amendments to the French bank reform proposals, 29 January 2013.

To read Finance Watch’s views on the weaknesses of the German reform, see Position paper on German bank reform, 22 April 2013.

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