Structural banking reform: MEPs block weakened rules on bank separation

BEUC NEWS - 04.06.2015

Last week, Members of European Parliament (MEPs) dismissed a watered-down version of a bill on the separation of megabanks. This proposal on Bank Structural Reform (BSR), initiated by the previous Commission, intends to separate investment and retail activity within certain banks.

The idea of splitting banks dates back to the financial crisis, during which taxpayers’ money was used to rescue financial institutions in order to avoid a systemic crisis. It is widely recognised that some megabanks, with assets that often dwarf national economies, benefit from the presumption that the state will step in to bail them out rather than letting them fail. This blank check for these “too-big-to-fail” banks has profoundly distorted the market, creating systemic risk and hampering competition in banking services. Separating investment and retail activities would simplify banking groups and make them more transparent, and would reduce the risk of another full-scale banking crisis.

However, as the momentum of the financial crisis slows, mounting industry pressure hollowed out the proposal before it was put to vote last week in the European Parliament’s Economic Affairs Committee. The revised proposal would have reduced the number of banks tackled as well as the impact of the legislation.

Fortunately, a majority of MEPs turned down this weakened proposal in a tight vote. BEUC agrees that a decent BSR remains a vital step in reducing the risks that megabanks pose to society, and urges the European Parliament to renew its engagement in this file.

Our partner FinanceWatch issued a press release following the vote.