EU to Embark on Strong Bank-Structure Overhaul, Barnier Says

Michel Barnier, the European Union’s financial services chief, said that he will present proposals this year for a “strong reform” of bank structure in a bid to prevent lenders from being too-big-to-fail.

The EU plans will “separate well the risks in the banking sector,” the European Commissioner said in an interview with Bloomberg Television’s Caroline Connan yesterday at the World Economic Forum in Davos, Switzerland. The proposals may be published by September, he said.

Barnier said that the “basis” of his work was a report presented last year by an EU mandated group led by Bank of Finland governor Erkki Liikanen. The group proposed that banks should be forced to shift some trading activities into separately capitalized units.

BNP Paribas SA and UniCredit SpA are among EU banks that signaled opposition to the Liikanen group’s proposals, saying that they would force them to cut back lending to businesses and households. Barnier said that his proposals would “respect the diversity of the banking sector” in the EU.

“I am considering all options,” he said, adding that his team of EU officials is carrying out impact studies.

Barnier said officials are also working on proposals for a “single resolution authority” that would handle bank failures in the 17-nation euro area.

Failing Banks

The plans will build on a draft law from last year that would force each nation to set up a bank-financed fund to pay for costs of restructuring and winding down failing banks.

The planned single authority will draw on these national funds rather than be backed by a central pot of money, Barnier said.

“It will work by using these national funds,” he said. “I have not spoken of a European fund.”

Separately, Barnier said that he was “not shocked” by moves by the EU lawmakers to cap banker bonuses by setting a maximum ratio of fixed pay compared with variable compensation.

He also said that he was working with U.S. authorities to iron out differences in the implementation of rules for over-the-counter derivatives.

The EU and U.S. should progress toward a “transatlantic financial alliance” with parallel regulations that spur “exchanges and the interdependence of our economies,” he said.

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