October 3, 2012
Yesterday saw the release of the hefty Liikanen report (a dense 153 pages) on the European banking sector. We’re yet to fully sift through the report but there a quite a few eye catching graphs and statistics which we thought worth flagging up.
In brief, the Group recommends actions in the five following areas:
- Mandatory separation of proprietary trading and other high-risk trading activities.
- Possible additional separation of activities conditional on the recovery and resolution plan.
- Possible amendments to the use of bail-in instruments as a resolution tool.
- A review of capital requirements on trading assets and real estate related loans.
- A strengthening of the governance and control of banks.
Many ideas which will be familiar to those in the UK and there are plenty of reasonable suggestions – which we’ll return to. We would note though that in Europe even small banks caused problems while the largest banks which caused the initial financial crisis were investment banks with no retail element. In some cases better supervision and enforcement of regulations is more important than the actual structure of the banking sector itself. But for now, take a look at these graphs – from the report – which raise some interesting questions over the proposition of a eurozone banking union:
The table and graphs above demonstrate the simply massive size of some of Europe’s banks, even in comparison to those in the US and Japan. This drives home the fact that, for a banking union to ever really work or be effective there must be combined deposit and resolution fund backing it up, something which the eurozone is now shying away from. This is also a much larger decision than the eurozone is currently making out the banking union and single supervisor creation out to be.Open Europe blog team