Risky investment strategies are to be banned, but the European Union has no plans to split up the continent's big banks. Members of the European Parliament, however, say gambling on the financial markets will continue.
"When everyone has something to complain about, I've probably found a very good balance," French EU Commissioner for the Internal Market, Michel Barnier, said about the critics of his latest proposal to regulate 30 major banks in Europe.
While the banks themselves see economic growth and jobs at risk, the European Parliament thinks Barnier's recommendations do not go far enough. The German and French finance ministers want to protect their financial institutions. Britain, with London as Europe's largest banking center, is not happy about any of it.
Barnier defended his proposal at a press conference in Brussels. The 30 major banks - eight of them in Germany - that together make up two-thirds of the total banking business in the EU, are still "too big to go bankrupt, too complex to handle and too expensive to save." Since they constitute a potential risk for the whole European financial market, they should be better regulated and supervised, Barnier said. Breaking up the banks was not an option, he said, adding that the European economy needs a robust banking sector; without it, the economy cannot function.
Banks see competitiveness at risk
But the European Banking Federation (EBF) sees things differently, complaining in a statement that Barnier was endangering exactly this robust banking sector with his new rules.The desired organizational separation of normal lending from risky speculative transactions and investment banking within financial institutions is a particular sore point for banking lobbyists. "Europe's banks are committed to ensure financing to the real economy and support the EU growth agenda, but ... with the scope and separation requirements that the Commission proposes this will most definitely be a difficult task," EBF Chief Executive Guido Ravoet said in Brussels.
Barnier insists, however, that the big banks be prohibited from engaging in speculative proprietary trading. "When banks lend themselves money at low interest rates and speculate in the financial markets at their own risk, they want to make a profit for themselves. Bank customers and the real economy draw no benefit. But the risks are very real for everyone." Even so, the ban on proprietary trading will apply only in limited circumstances. Barnier admits proprietary trading now accounts for a small part of the banking business, but warns it could rise again. Before the financial crisis in 2008, proprietary trading had been about 15 per cent of banks' business volume.
Separating banks or universal banks?
Green Party financial expert Sven Giegold is one of several members of the European Parliament calling for a clear separation of the various business activities of the big banks into separate companies. But Barnier says a breakup of universal banks, like Deutsche Bank or the Banque National de Paris (BNP), is unthinkable. He wants the banking supervisory authorities to decide which activities are risky and which are not, on a case-by-case basis in negotiations with the banks.
This is anathema to Giegold. "It's not a real separation, but in certain individual cases, certain things could be outsourced," he told DW. "It'll mean a lot of jobs for the industry, because it must hire consultants, accountants and lobbyists to be able to influence others."
EU members Germany and France, home to 12 of the affected banks, had campaigned hard for the preservation of universal banks. In Germany and France there are already laws on the regulation of the big banks that possibly would not be superseded by the new European rules. "This is just a supplement to the German law," Barnier said.
Building trust again
The EU commissioner, who initiated some 30 laws over the past five years, says he sees the latest proposal as a "keystone in an arch" meant to protect customers and taxpayers from new financial burdens.
Michel Barnier called on banks and EU member states not to torpedo the plans, saying they are ultimately about rebuilding confidence in European banks. "What has led to the deterioration in competitiveness of banks? What has destroyed trust and weakened growth? It wasn't the regulations but the lack of transparency, the speculation, the willingness to endanger entire countries and even the manipulation of the markets," Barnier said in Brussels. The behavior of the banks prior to the crisis was "crazy" and ultimately led to taxpayers having to dig deep into their pockets to save them.
"Keystone" or no, the European Parliament only plans to deal with the banking legislation after the European elections. Barnier expects a decision in early 2015. Following the implementation into national law, the new rules might then come into effect in 2017 and 2018. So, Brussels is facing a long legislative process, in which lobbyists, members of parliament and national politicians can still run wild.