21 November 2012, Brussels
Erkki Liikanen, governor of the Bank of Finland and chairman of the EU’s High-Level Expert Group on Reforming the Structure of the EU Banking Sector, yesterday addressed the Annual General Meeting of Finance Watch, the public interest advocacy association, in Brussels.
“Bank recovery and resolution plans can greatly reduce the social cost of bank failure and therefore the implicit subsidy. Reforms have gone a long way but not all the way. Structural reform makes recovery and resolution plans for banks stronger,” Mr Liikanen said.
Commenting on Mr Liikanen’s remarks, Finance Watch Secretary General Thierry Philipponnat, said: “Bank recovery and resolution plans are not an alternative to structural reform. These two reforms must be made together if we wish to achieve financial stability to benefit the real economy.”
In other remarks, Mr Liikanen said:
“Society needs a new social contract with banks.”
“Gains and losses should be shared by the same people.”
“Investment and commercial banking cultures should be separated.”
“Risk-based capital requirements may not provide adequate protection. Restrictions on leverage are needed.”
He added that if equity and debt holders are effective buffers “then taxpayers will rarely have to bear losses, if ever.”
Finance Watch’s consultation response, dated 13 November 2012, to the European Commission’s Consultation on the recommendations of the High-level Expert Group on Reforming the structure of the EU banking sector.
European Commissioner Michel Barnier established the High-level Expert Group on structural bank reforms with the Governor of the Bank of Finland Erkki Liikanen as chairman in February 2012. The Group presented its final report to the Commission on 2 October 2012.
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