EBF Key Information Document - The Liikanen Report

08 March 2013

The EBF summarised analyses on mandatory separation of high-risk trading activities (covered via the High-level Expert Group) and submitted its key recommendations.

The EBF shares the aim of the HLEG mandate of ensuring a safe, stable and efficient banking sector serving the need of the EU economy, citizens and the internal market. The EBF agrees with the main conclusions of the HLEG report, which acknowledges in particular that:

• no particular business model proved more or less vulnerable in the crisis;
• the benefits of the universal banking model should be retained;
• the regulatory reform agenda goes a long way in addressing the deficiencies of the
• financial crisis; and
• the Single Market should remain intact.

However, the EBF main concern relates to the HLEG recommendation calling for mandatory separation of proprietary trading activities and other significant trading activities over a certain threshold. The EBF considers that a compelling case for mandatory separation has not been made in the report. The EBF does not support this mandatory separation, as it:

• does not address the issue of systemic risk identified as a main concern by the HLEG;
• fails to identify and target the risk associated with banks’ high-risk trading activities;
• has a distortive effect upon vital client-related activities, e.g. market-making;
• will reduce diversification benefits of the universal banking model;
• will reduce banks’ lending ability and hence restrict economic growth;
• will reduce the competitiveness of the European financial sector vis-à-vis 3rd countries;
• will undermine the benefits of the Single Market by restricting cross-border activities.

Key recommendations:

• The EBF proposes to target high-risk and speculative trading activities (i.e. proprietary trading activities with no link to clients’ needs) by other regulatory measures than mandatory separation.
• Strengthening the use of Recovery and Resolution Plans (RRP) as recommended in the HLEG’s avenue 1 fits better with the regulatory reform agenda and will have considerable less distortive impact. However, the most critical step to enhance the resolvability of banks is to reach an agreement on the proposal for a Bank Recovery & Resolution Directive establishing a full EU crisis intervention framework. Separation of trading activities conditional on the RRP should be the last resort and should not be imposed on banks that are going concern.
• Effective supervision is also an important measure to target high-risk trading activities. The proposal for a SSM, alongside the current set-up of the three ESAs and the ESRB, will considerably strengthen the micro- and macro-prudential supervision of European banks.
• The EBF finds that additional steps, if any, in direction of the HLEG recommendation for an extra non-risk based capital buffer for the trading book should await the finalisation of the review of the trading book and take into account the buffers already proposed in the CRD IV/CRR.
• The EBF calls for an impact assessment of any legislative proposal. The HLEG does not address the potential economic consequences of implementing mandatory separation, in particular higher costs for customers.

Full document

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