Exclusive: Germany, France attack EU plan to curb big banks

Thu Jan 23, 2014 12:03pm EST
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By Huw Jones

LONDON (Reuters) - Germany and France have attacked European Union plans to curb banks' ability to take market bets with their own money, warning that this could jeopardize 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 told Reuters that Germany and France, together with Italy, were behind it.

It sends a warning shot from the euro zone's top economies to Brussels not to overstep the mark in a way that could challenge their national champions, such as Deutsche Bank (DBKGn.DE: Quote) or BNP Paribas (BNPP.PA: Quote).

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.

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 securitization and derivatives may also have to be separated from a bank's deposit-taking arm.   Continued...

European flags are hung outside the European Commission headquarters in Brussels January 22, 2014. REUTERS/Yves Herman