- Title: BELGIUM: Europe backs down in bid to tackle mega-banks
- Date: 29th January 2014
- Summary: BRUSSELS, BELGIUM (RECENT) (REUTERS) EXTERIOR OF EU COMMISSION BUILDING EU FLAGS
- Embargoed: 13th February 2014 12:00
- Location: Belgium
- Country: Belgium
- Topics: General
- Reuters ID: LVAC3YX9KCM8TMU49TV1NC82QWA0
- Story Text: The European Commission on Wednesday (January 29) unveiled a blueprint to isolate some risky trading at big banks but critics dismissed it as a limp challenge to their dominance.
After the collapse of Wall Street's Lehman Brothers in 2008, world leaders pledged to tackle banks that were "too big to fail". Yet throughout the crisis, and despite concern about the risks they posed, Europe's mega banks continued to grow.
On Wednesday, European Commissioner Michel Barnier outlined its proposals for a new law to reform the way big banks take risks when trading.
"We need to prohibit the riskiest activities, to identify and isolate risks. We need to simplify these major banks' structures and shrink them down to a size where they will not jeopardize the stability of the financial system as a whole," Barnier said
Announcing the draft legislation Barnier said it represented "the final cogs in the wheel of this regulation" to overhaul the European banking system.
The plan shies away from suggesting any splitting of big banks, as originally called for.
Barnier said the proposal had been crafted to avoid any impact on lending to the real economy, a well-worn argument of the banking lobby.
The EU draft law is set to go further, and, like the Volcker Rule in the United States, ban banks from risky trading. The U.S. rule, however, applies to all banks, while in the EU it applies to lenders above a certain size, taking in the top 30 or so banks.
Barnier said the Commission's intention was to serve the bloc's general interest by presenting the draft law.
"My colleagues and I are in charge of coming up with proposals, which are the centre of gravity of Europe's general interest. I believe Europe's general interest required all these cross-cutting laws -- which were finally approved by the European parliament and the Council and European ministers -- and which requires us to deal with the case of these thirty banks without breaking them, while preserving their diversity and granting the necessary exemptions. We had to deal with these banks that are 'too big to fail', 'too costly to save' and 'too complex to resolve.' I think this was our duty to do it," he said.
But despite giving up on splitting banks, the law provoked a hostile response in France, where it was attacked by the country's central bank governor Christian Noyer, who called the idea "irresponsible" and "contrary to the interests of the European economy".
Germany's finance ministry struck a more conciliatory tone. A spokeswoman described the Commission's proposal as generally "positive".
Britain said the proposal was in line with its own reform and that it would work to ensure that the final rules were workable.
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