On October 2, the European Commission published the report of the High-Level Expert Group on Reforming the Structure of the EU Banking Sector chaired by Erkki Liikanen, Governor of the Bank of Finland and a former member of the European Commission.

The report recommends:

  • Mandatory legal separation of proprietary trading and other high-risk trading activities from deposit-taking banks in the same group;
  • Possible additional separation of activities conditional on the recovery and resolution plan;
  • Possible amendments to the use of bail-in instruments as a resolution tool;
  • A review by the European Commission of capital requirements on trading assets and real estate related loans; and
  • A strengthening of the governance and control of banks. This should build on corporate governance reforms currently under consideration and in addition to the proposals referred to above should (i) strengthen boards and management; (ii) promote the risk management function; (iii) rein in compensation; (iv) facilitate market monitoring; and (v) strengthen enforcement by regulatory authorities.

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