EU PROPOSAL FOR A REGULATION ON STRUCTURAL MEASURES IMPROVING THE RESILIENCE OF EU CREDIT INSTITUTIONS
1) On 29 January 2014 the European Commission published a proposal for a regulation of the European Parliament and of the Council “on structural measures improving the resilience of EU credit institutions.”1 This proposed legislation is the EU’s equivalent of Volcker3 and Vickers.4 It was initiated by the Liikanen report5 published on 2 October 2012 but the legislative proposal departs in a number of ways from the report’s conclusions. There are two significant departures: the legislative proposal contains a Volcker-style prohibition, which also departs from the individual EU Member States’ approach and, although the proposal contains provisions which mirror the Vickers ‘ring- fencing’ approach, they are not, in direct contradiction to Liikanen’s recommendation, mandatory.
Background
2) Post financial crisis, various jurisdictions have started to overhaul bank regulation and supervision. Bank structural reform is part of that agenda and involves separating retail and commercial banking from wholesale and investment banking, as well as outright prohibitions. The objective is to protect core banking activities and depositors from the ‘riskier’ trading activities, which have been deemed as ‘socially less important’, by reducing the risk of contagion spreading from trading activities to traditional retail banking and protecting the deposits of individuals and small businesses in the case of bank failure. In addition, bank structural changes are intended to reduce complexity and so improve the resolvability of banking groups. The EU has been concerned about banks which it terms “too big to fail,” “too big to save” and “too complex to manage, supervise and resolve.” It has been concerned that failure of these banks would be detrimental to the financial system in the EU as a whole. The EU also believes that these banks have an unfair advantage over...