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EU Bank-Structure Plan Dealt Blow as Top Euro States Fight Back

Germany and France delivered a blow to draft European Union bank-structure rules, warning that the measures could harm lending to businesses and damage the bloc’s economic recovery.

EU Financial Services Commissioner Michel Barnier’s plans to empower regulators to split up parts of lenders may trigger an exodus of bank services to outside the 28-nation bloc or push them into the shadow-banking system, the nations said in a note obtained by Bloomberg News. His plans to ban the biggest banks from proprietary trading may also fall flat, they said. Barnier is set to unveil the proposals on Jan. 29.

Barnier’s approach to splitting banks “could result in a lot of activities useful for the financing of the economy ceasing to be provided by European banks and migrating to third-country players or to the shadow-banking system, jeopardizing the financing of the economy in a crucial recovery phase,” according to the note. “A ban on designated proprietary trading alone runs the risk of being ineffective due to continued non-designated proprietary trading.”

The opposition by the euro area’s two largest economies adds to the obstacles that Barnier’s proposals face before they could become law. His plans, which require approval from national governments and the European Parliament, have already been rejected by senior lawmakers on the grounds they discriminate between banks and allow too much national discretion. The Frenchman has pledged to propose bank-structure rules before the end of his term later this year, saying they are a vital part of the EU’s fight against too-big-to-fail banks that has dominated his 5-year-tenure.

Chantal Hughes, a spokeswoman for Barnier, said that the note had been received by the European Commission, and declined to comment further. Reuters reported on the document yesterday.

To contact the reporter on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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