EU Bank Firewall May Push Up Lenders' Costs, AFME Says

Banks may face increased funding costs and have to cut back lending if the European Union presses ahead with plans to impose structural changes, according to an industry lobbying group.

Proposals from an EU advisory group to force banks to put much of their trading activities into separately capitalized units may have a “significant detrimental impact on European growth,” the Association for Financial Markets in Europe said in an e-mailed statement. The plans “could also weaken the structure of the European banking sector” and reduce competition, the group said.

Michel Barnier, the EU’s financial services chief, has said that he’s weighing proposals made by the advisory group, which was led by European Central Bank Governing Council member Erkki Liikanen. The measures, which would force lenders to set up legally separate trading entities, are a “good basis” for future EU policy making, Barnier has said.

Liikanen’s proposals are “the minimum needed” to address the problem of banks being too-big-to-fail, Finance Watch, a lobby group which has members including labor unions and housing associations, said in an e-mail.

“It is essential that policymakers do not water down these proposals under pressure from the banking lobby,” the group said. “The way banks are structured today is a handicap to the EU’s financial stability and growth.”

If the Liikanen proposals are implemented as they stand, “there is a serious risk that the capital markets will be unable to meet Europe’s financing needs at this time of very subdued bank lending,” the Afme said.

Afme represents international lenders including Deutsche Bank AG, BNP Paribas SA, and Goldman Sachs Group Inc. Its statement was co-signed by the International Swaps and Derivatives Association.

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