Time for a wholesale restructuring of banking
Banking needs a culture change, which piecemeal legislation will not achieve on its own, says a draft report presented in the Economic and Monetary Affairs Committee on Wednesday. It advocates further, more radical reforms, including separating retail from investment banking, stimulating competition, improving corporate governance and crisis management, reducing complexity and curbing risk-inducing pay deals. The Commission is asked to table legislation to this end.
"The aim is for consumers to trust their bank like their doctor", said rapporteur Arlene McCarthy (S&D, UK), whose non-legislative report responds to the Liikanen expert group's findings and calls on the Commission to propose EU legislation.
Separating retail from investment banking
The draft urges the Commission to present a proposal for the mandatory separation of retail and investment banking activities. "This separation is necessary if we want to change the culture of the retail side of banks, because the investment banking mentality currently pervades retail banking", said Ms McCarthy.
Not all MEPs agreed on the need to focus on separation. Some argued that it would be hard to achieve, as some activities do not fall neatly into one sector or the other. Others cited the example of Cyprus to show that retail banking could also go belly up.
A competitive banking industry
The draft report also stresses that banks must become normal market players, subject to competition. It urges the Commission and member states to oblige banks to supply more consumer-oriented banking services and national supervisors to ensure that banks play by normal competition rules.
Many MEPs argued that creating a clear EU legal framework is the only way forwards towards a single market in banking. Others stressed the need to eradicate the "too big to fail" dogma, which led to severe market distortions and allowed some banks to generate profits from the state subsidies they received.
Talks among MEPsednesday Arlene McCarthy will now get under way and the committee vote is likely to vote on the proposals towards the end of May. Meanwhile,MEPs are calling on the Commission to table legislative proposals by the summer.
In the chair: Arlene McCarthy (S&D, UK)