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Bank-Structure Plan Dealt Blow as EU Lawmaker Says No Time

European Union Parliament Building
The European Parliament is set to adjourn for the election campaign in mid-April, with the elections themselves to be held in European Union nations between May 22 and May 25. Photographer: Jasper Juinen/Bloomberg

The European Parliament’s top financial lawmaker said time has run out for the assembly to deal with proposals to regulate the structure of banks in a bid to prevent lenders from becoming too big to fail.

Michel Barnier, the European Union’s internal market commissioner, has left it too late ahead of parliamentary elections to submit promised proposals to prevent banks being too internally complex, Sharon Bowles, chairwoman of the Parliament’s economic and monetary affairs committee, told reporters in London today.

Delays in unveiling the blueprint mean there is “no chance” of his plans becoming law before the assembly adjourns in preparation for elections next year, Bowles said. “Whatever he does is likely to be controversial, and secondly we’ve got other issues in the pipeline that we would really have to finish and would take priority.”

Regulators are seeking ways to overhaul banks’ operations so that riskier activities are separated from core lending and backed by capital reserves. The U.K., France, Germany and Belgium are already putting national plans in place for internal firewalls at their lenders.

Deutsche Bank AG and Credit Agricole SA are among EU banks to have lobbied publicly against proposals by a high-level group, led by Bank of Finland Governor Erkki Liikanen, to force lenders to separate their trading activities. The group was set up by Barnier to generate ideas for possible EU legislation.

‘Working Seriously’

“Considering the likely date for the adoption of our proposal,” as well as other key financial regulation priorities “we of course know there cannot be a final agreement on our forthcoming proposal during this legislature,” Barnier said in an e-mailed statement via his spokeswoman Chantal Hughes.

The commission’s aim is that legislators, after making progress early next year, will “resume discussions in the next Parliamentary session to reach final agreement later in 2014,” he said.

Barnier said last month that he was aiming to present his blueprint in November. His proposals require approval by the EU Parliament and by national governments before they can take effect.

The Parliament is set to adjourn for the election campaign in mid-April, with the elections themselves to be held in EU nations between May 22 and May 25.

Housekeeping Matters

The newly elected assembly will formally convene in July, and will work on housekeeping matters such as sharing out committee slots, making internal appointments and holding hearings on candidates to join the European Commission, the EU’s executive arm. A new team of EU commissioners is set to take office in November.

The fate of existing legislative proposals after the new Parliament and commission are in place is uncertain, as the institutions are free to redefine their priorities.

“Ideally this should have been dealt with as soon as early 2010 in response to the Volcker rule in the U.S.,” Nicolas Veron, fellow at the Brussels-based Bruegel research group, said in a telephone interview, referring to U.S. plans to ban commercial banks from proprietary trading.

“But we are where we are, and given that this is in the category of important, not urgent, and that it won’t be finished in this parliamentary term, it would be best left to the new team next year,” he said.

Final Accord

While the Parliament’s economic and monetary affairs committee may be able to agree on its negotiation position on a possible Barnier proposal by the elections, there wouldn’t be enough time left to hammer out a final accord with governments, Bowles said.

Parliament is already racing to complete work on other draft financial regulations before the end of its mandate, including proposals to centralize the handling of failing euro-area banks, and plans to regulate benchmarks, Bowles said.

The assembly has “already taken on far more, and they’re not small things we’ve taken on,” she said.

There is a need for EU rules on bank structure to prevent an incoherent patchwork of national measures, Veron said. This is especially true for the euro area, whose leaders have committed to build a banking union with pooled oversight and crisis management of banks, he said.

“If the single rulebook is to have any meaning this should be part of it,” he said. “France and Germany going it alone is bad behavior, also in terms of their banking union commitment.”

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