EU’s Hoekmark Still Opposed to Forced Splitting of Banks

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Gunnar Hoekmark, the European Parliament’s lead lawmaker on a bill aimed at tackling the issue of too-big-to-fail lenders, said mandatory separation of a bank’s investment and consumer operations isn’t the answer.

“We don’t need legislation that is forcing through mandatory separation because that would weaken the European banking industry,” Hoekmark said in an interview on June 2 in Brussels.

The Swede suffered a setback on May 26, when the assembly’s Economic and Monetary Affairs Committee narrowly rejected his proposed version of the bill. Hoekmark advocated making sure that supervisors have a toolbox of powers at their disposal to tackle banks’ risks rather than focusing on separation.

Now he faces the task of trying to build a wider consensus so the legislation can move forward.

The committee is split over what additional rules the European Union needs to set for its banks, having already toughened many key requirements since the 2008 financial crisis. The committee is charged with defining the parliament’s stance for negotiations with the bloc’s national governments on a final bill.

The European Commission, the EU’s executive arm, presented a draft bank-structure plan more than a year ago. Its plan would require systemically important firms to be screened by the central bank or another agency that supervises them.

Proprietary Trading

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. The proposal also bans proprietary trading.

Banks have said the commission’s plan amounts to quasi-automatic separation and would damage their ability to finance the economy.

The challenge to Hoekmark’s proposal came from representatives of the European United Left and Green groups in the talks, who called for compulsory separation for the most systemic banks. The Socialists and Democrats group backed plans for the biggest banks to face separation or tougher capital requirements.

Hoekmark and his allies saw their plans defeated by one vote in the committee, an outcome he attributed to an alliance of left-leaning lawmakers and legislators on the “extremes” of the parliament’s political spectrum.

‘More Stability’

While the vote was a “setback,” individual amendments approved by legislators showed little support for mandatory separation, Hoekmark said, adding that he would continue to oppose including such a measure in the draft law.

“We don’t want legislation that is making things worse for European banks, and that hinders investments without providing more stability,” he said. “We are not accepting mandatory separation.”

Hoekmark, a member of the center-right European People’s Party group, the largest in parliament, said he’ll begin by reaching across the aisle to the Socialists and Democrats group, which opposed him last month.

“We are having a time of reflection on how to proceed,” Hoekmark said. “I think we need to listen to the Social Democrats, what they really want to do,” he said. “Maybe we can deal with some of the concerns.”

Following the rejection of Hoekmark’s draft report, lead lawmakers on the committee representing the different political groups must meet to discuss the next steps.

Final Bill

The possibilities include holding further rounds of compromise talks that pick up where discussions stood before the vote, or restarting the parliamentary process entirely, which could involve changing the lawmakers directly involved in the talks.

Even once the parliament takes a firm position on the draft law, further steps would be needed for the rules to take effect. The assembly would have to negotiate with the Council of the EU, the institution that brings together representatives of national governments, on the final version of the text.

Nations are still holding talks on their position, with finance ministers provisionally scheduled to discuss the file later this month.

Supporters of the draft law in the parliament need to take “responsibility,” Hoekmark said. “Because if not the result will be that there will be no decision from parliament’s point of view at all, and this wouldn’t be good.”

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