Europe treads softly in challenging big banks' power

Mon Jan 27, 2014 4:13am EST
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By John O'Donnell and Huw Jones

BRUSSELS/LONDON (Reuters) - Europe will consider how to challenge the dominance of its big banks this week, but any new rules to isolate risky trading will take years to begin and there will be no attempt to split off market betting from deposit taking.

In a blueprint expected on Wednesday, the European Commission will outline how trading by banks can be walled off from customers' cash, but the debate among countries, many of whom are skeptical of the need to change, starts only in 2015.

After the collapse of Wall Street's Lehman Brothers in 2008, world leaders pledged to tackle banks that were 'too big to fail' to shield taxpayers.

Yet in the more than six years of crisis that toppled banks in Europe and sucked in countries from Greece to Spain, little progress has been made, and the size of banks such as Germany's Deutsche Bank (DBKGn.DE: Quote) or France's BNP Paribas (BNPP.PA: Quote) remains Europe's Achilles heel in the event of another crash.

Their vast scale is also blamed for fuelling risky trading and growth in the multi-trillion dollar derivatives market.

The proposed new rules, which are still many years off, signal that European policymakers have largely backed down in the face of banking resistance.

On Wednesday, the European Commission is set to outline its proposals for a new law, including a ban on trading by banks using their own funds and separating other types of trading from the 'safe' side of banking - taking deposits.

If agreement is reached, which is also in doubt, the rules would only take effect in 2017, some two years after similar action in the United States.   Continued...

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