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25th November 2011

EU fundamental look at bank structure and regulation

The EU Internal Market Commissioner, Michel Barnier, informed the European Parliament Economic Affairs Committee that he was forming a high level group to investigate the structure of banks within the European Union and report back with recommendations for change. An exact start date was not clear with the inference it may drift into next year. He said that the group would "have a look on that subject of structure of banks and separation in risk management".


Parallels have been drawn with the UK Independent Banking Commission recommendations for retail banking to have capital ringfenced form any other banking activities. It would seem most unlikely that this particular recommendation would be adopted in the rest of Europe given that several countries have very large universal banks with requirements for major capital injections currently and the governments where these banks are based would be nervous over increasing this burden further. This group clearly remain within the Too Big To Fail group and so the need to ringfence retail capital may ultimately be academic for many years to come.


The UK is likely to formally announce its bank restructuring proposals in the next few days. It would appear unlikely to agree to further changes at a later date based on the findings of this EU group in addition.


Separately the EU continues to consider the issues of Shadow Banking. Ideas for a significant new regulation of these institutions is met with the classic threat to move out of Europe by many of the funds that would be affected. There seems little appetite outside of Europe to tackle this fast growing sector.