The high-level expert group on reforming the structure of the EU banking sector (the Liikanen Group) has presented its report to the Commission. Its recommendations cover five main areas:
- mandatory separation of proprietary trading and other high-risk trading activities, including market making, from the deposit-taking side of a banking group;
- power for the resolution authority under the banking crisis management Directive, in achieving its financial stability objective, to require further changes to a bank’s legal and operational structure;
- possible amendments to the use of bail-in instruments as a resolution tool;
- reviewing capital requirements on trading assets and real estate related loans, and
- strengthening governance and control of banks.
The deposit bank within the group would still be allowed to use derivatives for its own asset and liability management, and to manage the assets in its liquidity portfolio. It would also be allowed to provide hedging services to non-banking clients and to underwrite securities.
The European Banking Federation has expressed concerns over the impact of these proposals on Europe’s universal banking model. It described the proposals as a mixture of Volcker and Vickers.
The Commission has opened a public consultation on the report until 13 November. (Source: Final Report of the High-level Expert Group on Reforming the Structure of the EU Banking Sector, EBF Reaction to Liikanen’s Recommendations and Commission Consultation on the Recommendations)