Last Friday (19 June), European Union finance ministers reached an agreement on a draft law aimed at tackling the problem of so-called too-big-to-fail banks, eventually forcing banks to curb proprietary trading and giving national regulators the power to split off risky trading activities from safer lending operations.
The deal would apply to banks whose trading activities exceed €100 billion, requiring EU’s 30 largest banks, including Barclays, Deutsche Bank AG and BNP Paribas, to split off such trades from their regular business. Ministers also agreed on mechanisms to monitor risk taking and potentially apply tougher prudential requirements.
The compromise represents the formal negotiating position of member states and still has to be agreed by the European Parliament, a process that can take at least six months. In fact, MEPs failed to reach a common position on the regulation in May and are still working on reaching a consensus.
Although the aim is to harmonise laws that have already been adopted in several Member States to deal with too-big-to-fail institutions, the law foresees an exemption to be granted to countries which already have similar legislation in place and can be accepted as a substitute for the EU law.
Whereas, in theory, the exemption can be used by any country, it seems an "apparent concession to the UK", who introduced sticker Vickers measures that ringfence retails activities from riskier investment banking. In that is a clear effort from the EU to manage tensions between its single market and to push for a more integrated Eurozone.
More in the media:
- The Financial Times (subscription required) - "EU finance ministers back drive to tackle ‘too big to fail’ banks"
- Yahoo! Finance - "EU agrees rules to curb bank trading risks"
- The Wall Street Journal - "EU Finance Minister Agree to ‘Too-Big-to-Fail’ Draft Banking Law"