Europe unveiled a blueprint to isolate some risky trading at big banks on Wednesday, which critics dismissed as a limp challenge to their dominance.
After the collapse of Wall Street's Lehman Brothers in 2008, world leaders pledged to tackle banks that were “too big to fail”. Yet throughout the crisis many of Europe's biggest banks continued to grow.
On Wednesday, the European Commission outlined its proposals for a new law to reform the way big banks take risks when trading. Announcing the draft legislation Michel Barnier, the European commissioner respo-nsible, said it represented “the final cogs in the wheel to complete the regulatory overhaul of the European banking system”.
But as with previous reforms, Wednesday's draft law has been tempered by industry lobbying. The plan shies away from suggesting any splitting of big ba-nks and opts instead for a ban on proprietary trading using their own funds, an activity that has already been much reduced. It suggests isolating other types of tra-ding from the 'safe' side of banking (deposit taking) by creating subsidiaries. However, the-se will remain within the bank.
Even if agreement with countries and the European Parliament is reached, which is also in doubt, the rules will begin only by 2017 at the earliest - roughly a decade after the start of the banking crisis in Europe and some two years after similar action in the US.
The foot-dragging illustrates the fading political will to push tougher reform in the face of opposition from Germany and France, both determined to protect their flagship lenders.
Wolfgang Schaeuble, Germany's finance minister, said earlier this week he had urged the commission to “think carefully” when drafting the new law.
Pressure from Paris and Berlin appears to have worked. Sven Giegold, an influential German lawmaker in the European Parliament, said Barnier had backed down. “Barnier couldn't bring himself to go up against France and Germany,” he said. “The resulting law is bureaucratic and ineffective. Rather than saying certain types of business should be separated, there are loads of exceptions.”
He and others say the law will do little to address the vast scale of big banks, blamed for risky trading and growth in the multi-trillion dollar derivatives market. Barnier said the proposal had been crafted to avoid any impact on lending to the real economy, a well-worn argument of the banking lobby. This has become a catch-all reason to reduce regulation despite protest from public-interest groups who counter that most