Structural reform of EU banking
Rearranging the pieces
Bank structural reform proposals have multiplied across the EU in the last 12 months - legislation now exists in the UK, France, Germany, and Belgium, with the European Commission the latest authority to put forward its own proposal.
Banks in the EU are facing unprecedented pressures on their structures as politicians and regulators seek to end ‘too big to fail’.
In January, the European Commission published its flagship policy on bank structural reform, which aims to ban proprietary trading at the largest banks operating in the EU, and may also require banks to separate trading activities from their retail deposit taking.
National versions of ring-fencing are simultaneously being created in several EU countries, including the UK, France, Germany and Belgium, raising concerns about cross-border consistency.
This report explains the European Commission’s proposal, and includes a comparative analysis of the Commission’s proposals with existing national versions, including the UK, France and Germany. It also looks at the design and practical challenges confronting banks subject to ring-fencing, using the UK rules to explore the issues in more depth.
Despite persisting regulatory uncertainty, the report suggests that banks begin serious design work, and plan to implement changes in steps over the full implementation timeline.
The journey is only just beginning in practical terms, and the operational challenges of ring-fencing banking activities are potentially huge – these issues are best explored sooner, rather than later.