The European Union’s bid to set out structure rules for about 30 of the bloc’s largest banks hit an early stumbling block as finance ministers challenged aspects of the plans that they said could harm lending to businesses.
Germany, France, Sweden, Poland and the Czech Republic were among countries to take issue with parts of the blueprint, according to two officials familiar with discussions that took place in Athens today. The debate showed the challenges facing Michel Barnier, the EU’s financial-services chief, as he pushes the plan forward.
The proposal, presented in January, would ban the bloc’s most systemically important lenders from proprietary trading and hand regulators the power to split them up according to EU-level standards. Barnier has said that blueprint is a “cornerstone” of the EU’s fight against too-big-to-fail lenders that has dominated his five-year tenure.
Barnier, whose term ends on Oct. 31, has argued for EU-level regulation responding to a flurry of national measures in the 28-nation bloc and the U.S., where authorities last year approved a proprietary-trading ban, the Volcker Rule. Regulators seek to build a more stable financial architecture to protect the global economy from future crises.
The proposals, which require approval from national governments and the European Parliament to take effect, build on work carried out by an EU-mandated expert group led by Bank of Finland Governor Erkki Liikanen, who also attended today’s meeting. Debate today focused on how banks should be allowed to keep trading activities in-house to keep financing channels operating smoothly.
“The debate is over what more is done, there is talk of so-called market making, which on the one hand is important activity for the economy, but on the other hand, if deposit banks use it to take large positions and risks, that can cause them great trouble,” Liikanen told reporters after the meeting. “This issue is still under debate and the work continues, but the discussion was extremely professional.”
Germany was among a group of countries to urge that regulators should have flexibility to decide, when imposing structural separation on a bank, whether so-called market making should be allowed to stay with the lenders’ deposit-taking unit.
Market making is the banking practice of keeping an inventory of securities on hand so that their customers can always find someone to buy from or sell to. A number of nations joined the warning that it could become harder for businesses to meet their funding needs if banks are forced to split off market-making activities.
The Netherlands “can support the headlines” of Barnier’s proposal, “but a lot depends on definitions,” Dutch Finance Minister Jeroen Dijsselbloem said after today’s talks.
“There is a lot of working out to do. So I stressed we want to get to know the details quickly, what will be the impact on the banks,” he said.
German Finance Minister Wolfgang Schaeuble said his nation has its own laws that can put Liikanen’s recommendations into practice. “We already have a basis to gain some experience and use it in the European debate,” Schaeuble said.
Germany believes that the EU should follow an approach that corresponds to the U.S. strategy, which is “that we can’t regulate everything in detail, abstractly and universally, but that we give the supervisor much more the instruments and the discretion to enable it to take the right decisions in every particular case,” Schaeuble said.
Negotiations on Barnier’s proposal “will be tough,” Swedish Finance Minister Anders Borg told reporters as today’s talks began.
‘Artificial and Bureaucratic’
Sweden will resist any move by the EU to place “artificial and bureaucratic” barriers between different types of banking activities, Borg said. If “you have a multinational industry and the jobs and growth that stem from that, then banks must be able to offer more complex products.”
Poland and the Czech Republic said the rules shouldn’t imperil the role so-called host supervisors play in overseeing banks. Host supervisors are those that regulate a subsidiary of a bank headquartered elsewhere.
Barnier’s plan aims to set a common EU standard to regulate banks labeled as globally systemic by the Financial Stability Board, a group of international regulators. Its latest list, which is updated annually, contains 14 EU banks, including HSBC Holdings Plc (HSBA), Barclays Plc, BNP Paribas SA, Deutsche Bank AG (DBK) and Royal Bank of Scotland Group Plc.
Other banks that would be affected by the plan include those with total assets exceeding 30 billion euros, and total trading activities exceeding either 70 billion euros or 10 percent of their total assets, if they meet those thresholds for three consecutive years. Aside from EU banks, the rules would also rein in some units of overseas-based lenders that are deemed to meet the thresholds.
“There was widespread agreement” at today’s meeting “that we need to address this problem. That we can’t have individual member states going off in different directions in what is after all a single market,” Jonathan Faull, Barnier’s chief official, told reporters.