EU bank trading plan stops short of U.S. Volcker Rule

Mon Jan 6, 2014 1:00pm EST
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By Huw Jones

LONDON (Reuters) - Banks in the European Union face limits on taking market bets with their own money under a draft EU proposal that represents a central plank of attempts to prevent a repeat of the financial crisis of 2007 to 2009.

Policymakers want to rein in excessive trading risks in the EU banking sector, whose assets total some 43 trillion euros ($59 trillion), that could threaten depositors if trades go wrong and potentially put taxpayers on the hook in a rescue.

Yet the EU proposal, seen by Reuters on Monday, has already been described as a watered-down measure designed to ensure approval across the bloc and which is less rigorous than equivalent "Volker Rule" regulations being introduced in the United States.

Despite its language banning proprietary trading - where banks trade on their own account and not on behalf of a customer - one financial industry lobbyists called the proposal a "cop-out compromise".

The lobbyist said it gives countries like France and Germany leeway to avoid splitting up their big universal banks into separate deposit-taking and more risky investment banking operations.

Brussels had already signaled it would stop short of too radical measures given political unease over breaking up big banks and giving a competitive advantage to non-EU rivals.

The proposal is being finalized by EU financial services chief Michel Barnier, who will formally publish it as a draft law within weeks, with further changes possible before then.

"Barnier does not want to make any waves during the remainder of his term," one financial industry official said. Barnier's term ends when the current commission is replaced on October 31.   Continued...

A statue depicting European unity is seen near EU flags outside the European Parliament in Brussels October 12, 2012. REUTERS/Francois Lenoir