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The German plans appear to reduce further the likelihood of a full implementation in Europe of last year’s Liikanen report, which put forward ideas on how to restructure European banks to reduce the risk of their needing taxpayer support.
The draft bill from Germany’s finance ministry, seen by the Financial Times, is Berlin’s response to the Liikanen report. It would require banks to set up a separate unit for any proprietary trading activities that accounted for either €100 billion of assets or 20 per cent of its balance sheet. Banks would not be allowed to use their deposit-taking units to fund such activities or lend to hedge funds or private equity funds.
If implemented, such a requirement will be less onerous than if banks had to split off all trading activities, including not only proprietary activities – that is, trades undertaken for a bank’s own benefit – but also business carried out for customers, including making markets in some securities.
Germany’s finance ministry wants the bill to be agreed by Chancellor Angela Merkel and her cabinet as early as next month and implemented at the start of next year, with activities to be ringfenced by mid-2015.
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