The largest European Union banks would face curbs on their ability on trade on their own accounts under draft plans being considered by Michel Barnier, the bloc’s financial-services chief.
About 30 lenders would face a “narrowly” defined ban on so-call proprietary trading, according to a draft of the measures. “Desks, units, divisions or individual traders specifically dedicated to taking positions for making a profit for own account, without any connection to customer activity or hedging the entity’s risk would be prohibited,” according to the document.
The tentative plans, which follow a pledge by Barnier to propose bank-structure rules before the end of his mandate later this year, would also empower supervisors, such as the European Central Bank, to force the largest banks to shift some activities including “investment and sponsorship of complex securitization, sales and trading of derivatives” to a separately capitalized unit.
Barnier has publicly renounced any hope of getting his bank-structure proposals into law before the end of his term in October, meaning it would fall to his successor to pursue their adoption. Barnier’s plans, which have yet to be approved by the European Commission, the EU’s executive arm, would require approval by national governments and the European Parliament before they could take effect. Barnier has said that publication by the commission should take place early this year.
“There is no formal proposal from the commission at this stage,” Chantal Hughes, a spokeswoman for Barnier, said by e-mail. “So any text seen is merely a draft, subject to substantial change, and has no political endorsement.”
Barnier “will present, in the next few weeks, a proposal which is the final piece of the puzzle to solve ‘too big to fail’; in other words, to ensure all banks can be resolvable and not require taxpayer bailout when they face difficulties,” Hughes said. “This is essential for the overall systemic stability of the financial system.”
Sharon Bowles, chairwoman of the parliament’s Economic and Monetary Affairs Committee, said in October that time had run out for the parliament to deal with Barnier’s proposal before elections in May.
Barnier’s proposals, which also include tougher transparency rules for trading in repurchase agreements, or repos, and other securities financing transactions, would apply to banks whose activities exceed certain financial thresholds.
A bank would also be covered if it is labeled as globally systemically important by international regulators.
That international list includes banks such as Barclays Plc, BNP Paribas SA and Deutsche Bank AG. On the basis of 2006 to 2011 data, 29 banks in total would be covered, according to the commission.
“The proprietary trading ban and the potential additional separation will apply to EU credit institutions and their EU parents, their subsidiaries and branches, including in third countries,” the document states. “It will also apply to branches and subsidiaries in the EU of banks established in third countries.”
Exemptions could apply for banks based in nations that already impose equally rigorous rules. Some special treatment is also foreseen for savings banks, cooperative banks and institutions that “are organized in a decentralized manner.” EU sovereign debt would also be exempt from measures to push trading activities into a separate unit.
U.S. regulators last year approved a final version of a ban on proprietary trading by commercial banks, known as the Volcker rule.
The focus on proprietary trading, and the limited number of banks covered, diverges from recommendations made by a high-level group set up by Barnier and led by Bank of Finland Governor Erkki Liikanen.
Deutsche Bank and Credit Agricole SA (ACA) are among lenders to have lobbied publicly against the Liikanen group’s proposals.
The Financial Times reported on the draft earlier today.
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