The European Parliament has published a Draft Report on Reforming the Structure of the EU's Banking Sector. The Parliament has urged the Commission to come forward with a proposal for mandatory separation of banks' retail and investment activities. It also suggests that such mandatory separation should be achieved through the establishment of a thorough, transparent and credible "ring fence" around bank activities that are vital to a real economy, such as those relating to credit functions, payment systems and deposits. It also takes the view that in the event of a bank failure, the ring fence must ensure that the retail entity continues business unaffected by operational problems, financial losses, funding shortages or reputation damage resulting from the resolution or insolvency of the investment entity.
The report also suggests that the Commission ensure that trading activities do not benefit from implicit guarantees, the use of insurance deposits or taxpayer bailouts and that these activities do not pose a risk to the delivery of ring fence retail services. It urges the Commission to ensure that where banks undertake trading activities, the risk and costs associated with those activities are borne by their trading arm and not by their ring fence retail arm. The report spells out in more detail what this separation will look like in the context of sources of bank funding with the banks retail investment entities and also limits on the extent to which the two entities are reliant on each other for funding and/or resources. The report also deals with corporate governance issues. Measures to enhance competition are also addressed.