European Central Bank Governing Council member Erkki Liikanen said it’s up to the European Commission to decide how fast it will progress in implementing proposed reforms to the banking sector.
“The commission is efficient and they work in depth but I can’t give timetables,” Liikanen, the Finnish central bank governor whose working group presented plans to overhaul European banks on Oct. 2, told reporters in Frankfurt today. “It’s for the commission now. It’s for them now to work out the details to make comments on the proposals.”
Under the non-binding suggestions, European Union banks would be forced to push much of their trading activities into separately capitalized units and face extra bonus rules. The EU-mandated group also called for a toughening of Basel bank-capital rules and for lenders to issue debt designed to be written down in crises.
Michel Barnier, the EU’s financial services chief, said on Oct. 2 the commission would seek public comment on the Liikanen group’s recommendations for six weeks before deciding how to proceed. Any steps to implement parts of the report would be proposed “before summer” 2013, he said.
In the future, investors must stem the main burden of future bank failures, Liikanen said.
“It’s essential to strive for good recovery and resolution plans,” Liikanen said, adding that “we need resolution funds which should be financed by the companies themselves.”
“Bail-in should be the rule, bail out should be the rare exception, if ever used,” he said. “We must make sure that not only gains but also losses fall on the risk takers.”
Liikanen said the proposed division into investment and deposit banks “are the means to further containing systemic risks” and regulatory reforms are crucial to reassure confidence in European financial institutions.
Corporate lending can be done “in full” through the deposit banks, he added.