EU Council overtakes Parliament on Banking Structural Reform

banking reform

After a failed ECON Vote in European Parliament on 26 May, the Latvian Presidency took the lead in finalising the Council general approach on Banking Structural Reform which was agreed on 19 June at the ECOFIN meeting in Luxembourg.

Council Agreement

The Latvians put forward a compromise based on allocating systemic banks into two tiers to be scrutinised with regards to their respective trading activities. Banks allocated to either of these tiers will be subjected to differentiated reporting requirements, a risk assessment and subsequent possible supervisory actions. G-SIBs or banks with EUR 100 billion of trading activities will be placed in Tier 2 to undergo a more granular risk assessment. If the granular assessment identifies excessive risk, supervisory action follows in a way that is proportionate to the risk identified. To this end while the possibility to separate excessively risky activities remains, supervisors can also opt to increase own funds requirements, as well as other prudential measures.

Furthermore, instead of a ban on proprietary trading, as proposed originally by the Commission, the Council approach opts for a mandatory separation of proprietary trading activity. In this context, specific rules have been laid down acknowledging the beneficial function of market making, which has thus been defined as an allowed activity.

The Council must now await the European Parliament to finalise its negotiating position before trilogues can commence.

Divided European Parliament

Negotiations in Parliament stalled around the Rapporteur, Gunnar Hökmark, and Shadow Raporteur, Jakob von Weizsäcker, maintaining their respective approaches: risk based assessment with a flexible supervisory toolkit vs sized based triggering with automatic separation. Rapporteur Hökmark was unable to find a compromise and moved for a vote on 26 May facing off his EPP, ECR, ALDE compromise text against an S&D text and a Greens text.

After two hours of agonising split voting, a “smorgasbord” text was produced drawing from neither of the proposed compromises but from a seemingly random selection of originally tabled amendments which called the consistency of the final text into question. Thus, ultimately the ECON BSR report was rejected bringing the EP back to square one.

The Parliament negotiating team has been tasked to draft a plan a way forward over the summer with the aim of arriving at an agreement in the autumn opening up the possibility for trilogues closer to the end of the year.

The EBF has considerable concerns over the proposals and continues to lobby the parties concerned, in particular over the potential negative effects banks separation may have on liquidity, market making and the Capital Markets Union.

 

BSR Cartoon European Banking Federation

 

 

 

 

 

 

 

 

EBF contact: T.buenker@ebf-fbe.eu