Germany and France have attacked European Union plans to curb banks’ ability to take market bets with their own money, warning that this could jeopardise a delicate economic recovery, a paper seen by Reuters showed.
Next week, the European Commission will unveil a blueprint to challenge the power of big banks, tackling one of the biggest risks exposed by the 2007-2009 financial crisis.
The paper does not bear an author’s name but five financial industry and government sources said that Germany and France, together with Italy, were behind it.
It sends a warning shot from the eurozone’s top economies to Brussels not to overstep the mark in a way that could challenge their national champions, such as Deutsche Bank or BNP Paribas.
It also underlines growing tensions with Brussels on financial reform, weeks after a proposal from Brussels to set up a system of banking union was watered down by EU members states, including Germany.
This could jeopardise delicate economic recovery
The European Commission is due to formally propose the draft law to rein in excessive trading risks on January 29, to apply lessons from the financial crisis that forced taxpayers to bail out lenders that had taken excessive risks.
Leaked versions of the draft law propose banning proprietary trading at banks above a certain size.
Proprietary trading refers to banks taking bets on markets with their own money rather than a client’s. Other types of trading such as complex securitisation and derivatives may also have to be separated from a bank’s deposit-taking arm.
This approach could result in a lot of activities useful for the financing of the economy ceasing to be provided by European banks and migrating to third country players or to the shadow banking system, jeopardising the financing of the economy in a crucial recovery phase,” the paper says.
Shadow banks refer to non-banking firms that deal in credit such as broker dealers and some hedge funds.
Financial industry officials said the paper is widely seen as an attempt to fend off new rules that would prevent so-called universal banks from losing the benefits of having all operations under the same roof. (Reuters)