Is it impossible to place the banks under control?

Michel Barnier, Member of the EC in charge of Internal Market and Services (on the right), and Erkki Liikanen, Governor of the Bank of Finland, Member of the Governing Council of the European Central Bank and Chairman of the High-level Expert Group on structural aspects of the EU banking sector, gave a joint press conference to present the main findings of the Group. Here the Commissioner looks like trying to overshadow the central banker. (EC Audiovisual services, 02/10/2012).

Michel Barnier, Member of the EC in charge of Internal Market and Services (on the right), and Erkki Liikanen, Governor of the Bank of Finland, Member of the Governing Council of the European Central Bank and Chairman of the High-level Expert Group on structural aspects of the EU banking sector, gave a joint press conference to present the main findings of the Group. Here the Commissioner looks like trying to overshadow the central banker. (EC Audiovisual services, 02/10/2012).

Within the next few weeks the European Commission is expected to announce a proposal for a structural reform in the banking sector. The declared target is to make sure “that banks do not remain or become too-big, too-complex or too-interconnected to fail”. In announcing its intentions on this grandiose plan, the EU’s executive arm states that the base of this new initiative is the famous ‘Erkki Liikanen High-level Expert Group’ report. The Liikanen committee recommended the breaking up of banks in two, one high risk investment company and a retail banking services firm.

This is a far reaching proposal and in view of the magnitude of the whole affair the Commission seems to be very timid in front of this herculean project. The announced issued yesterday doesn’t state clearly what was the core proposal of the Liikanen Group report nor it sets a day for the presentation of this new Commission initiative. To grasp the size of this proposal it suffices to say that the EU banks have accumulated assets 3.5 times the GDP, while their American peers’ balance sheet is only 1.8 times the GDP. If the EU banks are to reduce their exposure to US levels they have to shed assets of €22.1 trillion, given that today their assets are €42.9 trillion.

Outsized lenders

Of course this abatement of EU banks will be realised over a long period of time. However the crucial point is that this procedure has to be tabled down in a concrete manner, with a clearly set target in time to ban the use of other peoples’ money for banks’ proprietary trading. This is exactly what the Liikanen Group concluded and proposed a break up of banks in two. The high risk part would be able to continue in this line but without using depositors’ money. In this way the high risk financial entities wouldn’t require taxpayers’ bailout.

To this effect the Commission sets clearly the targets of its new initiative. They will include measures on the structure of the EU banking sector, which aim at:
*Ensuring that banks do not remain or become too-big, too-complex or too-interconnected to fail;
*Reducing excessive intra-group complexity and conflicts of interest, thus facilitating management, regulation, supervision, and resolution of banks;
*Guaranteeing that the banks can be resolvable and do not require taxpayer bailout when facing difficulties;
*Ensuring that banks will no longer be allowed to use public safety nets to artificially expand in risky activities that are not linked to core banking activities.

Perfect targets, poor results

Those targets are very clearly set and would entail a revolution in the banking industry. What the Commission doesn’t say is how effectively the banking industry plans to react to this major reshuffle of its business. The banks which led the western economy to its gravest crisis in 2008 are now accustomed to use not only other peoples’ money but also the public safety net which guarantees that they ‘cannot fail’. Is it possible to change all that with one Commission’s proposal?

This question may be partially answered by what happened this week in the MiFID II affair. Last Tuesday an agreement in principle was reached by the European Parliament and the Council on the updated rules for markets in financial instruments, in the context of the renowned MiFID II draft directive. This new law is aimed at making the financial system safer and more responsible. The MiFID II reform means that organised trading of financial instruments must shift to multilateral and well-regulated trading platforms. Was this achieved? Of course not!

Do it as in MiFID II

The largest part of the financial instruments universe, like the interest rate and bond derivatives and other unknown to us mortals trade instruments, will continue to rotate freely in the vast uncharted areas of the outer financial space. Michel Barnier, the responsible Commissioner for the internal market, indirectly recognised that. He said “Although I regret that the Commission’s proposed ambitious transparency regime for non-equity instruments, such as bonds and derivatives, has not been fully achieved, MiFID II represents an important step in the right direction towards greater transparency in this area”.

The banks managed to keep a door open, through which they can continue their unholy games of cartel forming and risky betting. A good part of the responsibility for that, weighs on the legislators. Probably the lenders will also manage to avoid the full consequences of the Liikanen group’s recommendations.

 

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

This is how a smart factory actually works

4 bold new ways New York is going clean and green

Why businesses are nothing without strong human rights

These are India’s cleanest cities

70 years on, landmark UN human rights document as important as ever

Greece: Tsipras’ referendum victory does not solve the financial stalemate of the country and its banks

Trump’s Syrian hit the softest option vis-a-vis Russia

The race for Driverless vehicles: where is the industry heading?

Syria: Civilians bear brunt of unilateral sanctions, exacerbating ‘unparalleled suffering, destruction,’ says UN expert

Working when sick is rising and harms you and your employer. This is why

Methane levels are increasing – and scientists aren’t sure why

2019 EU Budget: Commission proposes a budget focused on continuity and delivery – for growth, solidarity, security

These are the cities where people work the longest hours

How next-generation information technologies tackled COVID-19 in China

Commission assesses and sets out reform priorities for the countries aiming to join the EU

Statement of the UK Coordination Group and the leaders of the political groups of the EP

Recovering from COVID-19: these are the risks to anticipate now – before it’s too late

EP Brexit Steering Group calls on the UK to overcome the deadlock

UN, African Union make significant joint commitment to global health

EU Trust Fund for Africa: Can it be beneficial for Italy and tackle the migration crisis in the Mediterranean?

Four things the UN chief wants world leaders to know, at key COP24 climate conference opening

In Pakistan, Guterres urges world to step up climate action, praises support to Afghan refugees

Three ways to improve your corporate culture in the #MeToo era

Why do medical students seek for work abroad?

Why youth unemployment is so difficult to counter

Foreign Investment Screening: new European framework to enter into force in April 2019

Attack on Saudi facilities risks dragging Yemen into ‘regional conflagration’: UN Envoy

UN chief calls for Security Council to work with Myanmar to end ‘horrendous suffering’ of Rohingya refugees

UN makes ‘declaration of digital interdependence’, with release of tech report

Western Sahara: a ‘peaceful solution’ to conflict is possible, says UN envoy

The European Union’s Balkan Double Standard

“Let hope be the antidote to fear” – Today’s WHO briefing and other key Coronavirus updates, tips and tools

Humanitarian Aid: €10.5 million for South and South East Asia

How fixing broken food systems can help us meet all the SDGs

5 Ways Companies Can Progress More Women into Leadership Roles

New Report Offers Global Outlook on Efforts to Beat Plastic Pollution

Coronavirus: the truth against all myths

‘Historic’ moment: Palestine takes reins of UN coalition of developing countries

Four things Turkey did for business in the G20

UN space-based tool opens new horizons to track land-use on Earth’s surface

Address by the President Antonio Tajani at the funeral of Nicole Fontaine

When is necessary understand the cultural marks in health-disease process

UN chief commends African Union on adoption of institutional reforms

There is no recipe for a healthy mental state

Is Eurozone heading towards a long stagnation?

Here are three ways Africa’s youth are defeating corruption

How we overhauled healthcare amid Venezuela’s crisis

South Korea wants to build three hydrogen-powered cities by 2022

UN rushes to deliver aid as key Yemeni port city is ‘shelled and bombarded’

How India’s globalized cities will change its future

Industrial producer prices on free fall and stagnant output

Across Europe, people are struggling to make ends meet. We need a common response immediately.

Coronavirus: urgent response to support citizens, regions and countries

Africa-Europe Alliance: first projects kicked off just three months after launch

Millennials aren’t voting – but these young leaders have a plan to change that

Remittances could fall by $100 billion because of COVID-19 – here’s why that matters

Although Greece is struggling to pay salaries and pensions Varoufakis is “optimistic”; the Sting reports live from EBS 2015

European Semester Winter Package: assessing Member States’ progress on economic and social priorities

Beyond trust: Why we need a paradigm shift in data-sharing

UN condemns deadly attack against G5 Sahel force headquarters in Mali

More Stings?

Advertising

Comments

  1. I think the admin of this web site is actually working hard in favor of his web site, because here every material is quality based material.

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s