EU Bank Proprietary-Trading Ban Plan Runs Into Opposition

The European Union’s bid to set structure rules for about 30 of the bloc’s biggest banks has run into resistance from countries opposed to a planned proprietary trading ban.

A “substantial number of countries” have “expressed serious concerns or reservations” about the proposed ban, according to a report prepared by Italy, which holds the EU’s rotating presidency. “Only very few countries are explicitly in favor.”

The proposal for banking-structure reform by Michel Barnier, the EU’s financial-services chief, has come under attack on multiple fronts since he presented it in January. In addition to the proprietary-trading ban, Barnier set out EU-wide standards for splitting up the most systemically important banks that would push certain kinds of derivatives and other trading activities into separately capitalized units.

The proprietary trading ban is “narrowly” defined, according to the proposal. It would capture “desks’, units’, divisions’ or individual traders’ activities specifically dedicated to taking positions for making a profit for own account, without any connection to client activity or hedging the entity’s risk.”

The lack of support for the proprietary-trading plan adds to criticisms that have already been made by nations against the separation rules proposed by Barnier.

Too Wide

Germany, France, Spain, Poland, and Denmark are among at least 10 countries that have challenged Barnier’s approach to separation of trading activities, with some warning that the plans don’t leave supervisors enough flexibility to decide whether to go ahead with separation, and that the range of activities to be split off is too wide.

“This is an important proposal to deal with those banks that still, despite all the steps taken since the crisis began, would pose a risk to the EU economy if they failed,” Chantal Hughes, a spokeswoman for Barnier, said in an e-mail. “We stand ready to explain our plans to the member states and hope negotiations on the proposals can proceed quickly.”

The separation plan has also hit a legal snag, after in-house lawyers for the EU said that some exemptions built into the proposals needed to be scaled back or the legislation as a whole made more flexible.

Italy prepared its note ahead of a meeting of national officials tomorrow. Barnier’s proposals require approval from governments and from the European Parliament to take effect.

Push Trading

Lawmakers have said that they expect the discussions on the final form of the measures to last at least a year.

A number of nations are calling for the proprietary-trading ban to be scrapped in favor of an alternative approach, on concerns that a ban could simply push the trading outside of the regulated banking industry.

“Several countries prefer or are open to consider the separation of proprietary trading” into units outside of the core bank, the document states. “They believe that it is always better to regulate in a stricter way than prohibiting certain activities, which would then be performed by less or non-regulated entities,” according to the document, which is undated and doesn’t set out individual countries’ positions.

Many nations are also opposed to plans to prohibit banks covered by the proprietary-trading ban from investing in hedge funds -- a measure the European Commission advocated as a means of preventing them getting around the prop trading ban. Governments “judge the provision unclear and too restrictive,” according to the document obtained by Bloomberg News.

Michelangelo Nerini, a spokesman for the Italian government’s representation to the EU, declined to comment on the report.

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