How Will Euro Banks Be Restructured?

Various proposals for banking regulation changes in Europe are currently under consideration and could result in the drastic restructuring of EU banks.

Liikanen

One of the proposals comes from an EU-mandated group which is led by Erkki Liikanen, the governor of Bank of Finland. Liikanen’s group offered non-binding suggestions that would have EU banks move trading activities, such as market-making, into a unit that’s separate from deposit collecting and that’s capitalized separately. The EU banks would also face extra rules on bonuses.

The European Central Bank has not yet adopted Liikanen’s proposal, and may not do so. The ECB stated Monday morning that “an impact assessment needs to be carried out” as the Liikanen group’s proposals “may have a significantly different impact across the EU, given differences in the structure of the banking sectors.”

The ECB has not downright rejected the Liikanen group’s proposals, but emphasized that the plans needed to be reassessed as there could be consequences to the real economy of member states and in relation to divergent funding costs. Other banks, like Deutsche Bank AG and Credit Agricole SA have lobbied against the Liikanen group’s proposals…