Hoekmark Sees EU Assembly Majority for Bank-Structure Law

The European Parliament’s lead lawmaker on a bank-separation bill said he expects a majority of the assembly’s economic affairs committee to back his approach to the rules, paving the way for talks with national governments.

Gunnar Hoekmark, the Swede who’s shepherding the legislation through the committee, last week abandoned efforts to reach a deal on the legislation that all of the assembly’s parties could accept. Disagreement over how far the law should go in requiring too-big-to-fail banks to have more capital, or to split their investment and consumer operations, made an all-party compromise impossible, he said.

Hoekmark said he’s moving ahead with a blueprint that puts banks’ supervisors in the driving seat in deciding what measures should be taken, warning that a heavier approach risks targeting the wrong lenders and damaging growth.

“I’m quite confident about having a thin but still clear majority” in the Economic and Monetary Affairs Committee when a vote is called later this month to set the parliament’s negotiation stance on the bill, Hoekmark said in a May 5 interview.

The European Commission, the European Union’s executive arm, presented a draft bank-structure plan more than a year ago. A final law would require approval by parliament and the Council of the European Union, the EU institution that represents national governments.

The EU’s bid to set some common standards on bank structure lags behind measures 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 plans.

Supervisory Discretion

Last week’s split left Hoekmark, a Swedish member of the European People’s Party group, the parliament’s largest, allied with the Alliance of Liberals and Democrats for Europe and European Conservatives and Reformists in pursuing an approach aimed at handing more power to supervisors.

Representatives of Socialists, Greens and other groups had sought an approach closer to the commission’s plan.

“I hope that I will be able to reach out to many members of the Socialist group,” Hoekmark said. “I’m not intending to design the compromise proposal in a way that I’m fending them off.”

Hoekmark said that his approach opens up the route to a deal with the Council of the EU on the final version of the law, because talks among national governments are moving in a similar direction.

“Parliament’s decision is needed to give new oxygen to the negotiations and discussions in council, and also be able to set the momentum,” he said. “But that requires that it be realistic.”

Financial Stability

The commission’s proposal would require the bloc’s biggest banks to be screened by the central bank or other agency that supervises them. 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 and will damage their ability to finance the economy.

A blueprint focused on separating investment and consumer banking risks missing the point, Hoekmark said. EU measures shouldn’t focus on “smashing stable institutions,” he said.

“You can’t say that a bank is more risky because it is doing trading as well as retail,” Hoekmark said, citing the examples of the panic unleashed by the failure of Lehman Brothers Holding Inc., a pure investment bank, and more recent turmoil in Spanish savings banks.

“In a time when Europe is suffering from unemployment and low or no growth at all, I can’t accept and take responsibility for us smashing or reducing the opportunities we have for investment banking,” he said.