European Commission to propose structural reform measures on EU banking sector

Over the past five years,  a large number of financial reforms to learn all the lessons from the financial crisis have been put in place. The objective of these reforms has been to make the financial sector as a whole more robust and resilient, to reduce the impact of potential bank failures, and ensure the financial sector is at the service of the real economy. Enormous progress has been made, including in the past few weeks on banking union. New capital rules for banks apply as of 1 January this year.

As things stand, most banks in the new set up will be resolvable without taxpayers having to step in when things go wrong. However, a few very big, complex and interconnected banks might not be.

That is why the European Commission will make a proposal in the coming weeks which will be the final piece of the puzzle to address 'too big to fail' banks. It will include measures on the structure of the EU banking sector, which aim to:

1. Ensure that banks do not remain or become too-big, too-complex or too-interconnected to fail;
2. reduce excessive intra-group complexity and conflicts of interest, thus facilitating management, regulation, supervision, and resolution of banks;
3. guarantee that the banks can be resolvable and do not require taxpayer bailout when facing difficulties, and;
4. 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.

Background

Since the start of the financial crisis, the European Union and its member states have engaged in a fundamental overhaul of bank regulation and supervision.

In the area of banking, the EU has initiated a number of reforms to reduce the impact of potential bank failures with the objectives of creating a safer, sounder, more transparent and responsible financial system that works for the economy and for society as a whole.

However, the EU banking sector remains large in absolute (EUR42.9 trillion) and relative terms (nearly 350% of EU GDP). The largest banks are also more active in complex cross-border trading activities through a large number of legal entities.

Within the context of national initiatives and an increasing global debate on the merits of bank structural reform, Commissioner Barnier announced in November 2011 the setting up of a High-level Expert Group with a mandate to assess the need for structural reform of the EU banking sector, chaired by Erkki Liikanen, Governor of the Bank of Finland. The Group delivered its report in October 2012 (IP/12/1048) and provided a good basis to draft the proposal.

Several member states (UK, FR, DE, BE, etc.) and international partner countries (US) have already embarked on structural reforms.

The EU proposal aims at providing a common framework to maintain a level-playing field and consistency in the banking union and in the single market. This is important for the overall systemic stability of financial system.

The EU Single Market

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