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Banks win as EU scraps proposal to split off trading businesses
Economics

Banks win as EU scraps proposal to split off trading businesses

25.10.2017 From our online archive
The European Commission on Tuesday said there is "no foreseeable agreement" on legislation which would have potentially split retail units from riskier investment banking arms of major lenders.

(Bloomberg) The European Union abandoned one of its most controversial efforts to rein in the banking industry since the financial crisis, concluding that the need to protect against too-big-to-fail lenders had already been achieved in other ways.

The European Commission, the EU's executive arm, on Tuesday said there is "no foreseeable agreement" on the legislation, which would have potentially split the retail units from riskier investment banking arms of major lenders such as Deutsche Bank and BNP Paribas. The proposal, which hasn't progressed since 2015, was originally made in a bid to boost financial stability and safeguard taxpayers from the risk of future bailouts.

"The main financial stability rationale of the proposal has in the meantime been addressed by other regulatory measures in the banking sector," Vanessa Mock, spokeswoman for the commission, said in an e-mailed statement. "The world has moved on since the time the proposal was tabled. The trading operations of big banks are today smaller than they were before the crisis."

The withdrawal of the proposal is a long-sought victory for the banking industry, which lobbied hard against its adoption in Brussels and said the legislation would damage the ability of lenders to help the economy to grow. The legislation bogged down in European Parliament as lawmakers split on whether it was necessary after many other laws were adopted to rein in risky practices in the aftermath of the 2008 crisis.

The parliament's lead legislator, Gunnar Hokmark, welcomed the commission's decision to retract the proposal.

"It is the right decision from the commission to withdraw," Hokmark said on Tuesday, adding that he had amassed a majority against the proposal. "It was my firm belief that splitting up universal banks by separating retail from trade, investment and market making, would create instability and hinder investments and a more dynamic banking sector."