Gunnar Hoekmark, the European Parliament’s lead lawmaker on a bill intended to tackle too-big-to-fail banks, abandoned efforts to reach a deal on the legislation that all of the assembly’s parties could accept.
Hoekmark, a Swedish member of the European People’s Party group, the parliament’s largest, said disagreement on whether to force banks to split their investment and consumer operations had made an all-party compromise impossible in the assembly’s Economic and Monetary Affairs Committee.
The parties “have had problems reaching a compromise because the majority don’t want to have any sort of mandatory separation,” Hoekmark said by telephone on Wednesday. The move marks a rejection of pleas from the parliament’s Socialist and Green factions for binding separation criteria. Hoekmark said a majority backs leaving that decision to supervisors, and that he’ll proceed with allies in other groups on that basis.
The European Union’s bid to set some common standards on bank structure lags behind steps in individual nations, such as the Vickers rule in the U.K. Other countries such as France, Germany and Belgium have also developed their own measures.
The European Commission, the EU’s executive arm, presented an initial draft plan more than a year ago, and the parliament is negotiating internally on the text. A final law would require approval by the assembly and national governments.
The original EU draft would require the bloc’s biggest banks to be screened by their supervisors. Separation of investment and consumer banking would take place if the firms were found to exceed certain levels of trading and risk-taking, with some limited room for supervisors to grant an exception if the bank proves that there is no risk to financial stability. Banks have said the plan amounts to quasi-automatic separation.
The debate over whether to grant more discretion to watchdogs has implications for the EU economy, Hoekmark said. “This is becoming more and more a matter of security that we can get the market-making and investment flow that we need.”
Inadvertently choking this through mandatory separation “would be contrary to everything we want to achieve” in terms of the EU’s push for more market financing of businesses, jobs and growth, he said.
Hoekmark also said that the competitiveness of the EU financial services industry is at stake.
“I have nothing against American investment banks,” he said. “But I can’t accept that they will be able to dominate the investment banking market in Europe because their competitors in Europe are hindered in their activities.”
Hoekmark said he would seek as much support from the assembly as possible for a discretionary approach. The economic affairs committee is set to vote May 26 on its negotiating stance on the law, paving the way for negotiations with the Council of the European Union, which represents national governments. The council hasn’t yet formulated its stance.