International Relations

Bank Structural Reform (BSR)

Background
Actions of Finance Watch
Key risks
and our Publications on this dossier

Background

Since the financial crisis started in 2008, European and national level initiatives have been presented to reform the structure of banks, including the possible separation of deposit-taking from trading activities.

On 29 January 2014, the Commission published two legislative proposals, one on structural measures to improve the resilience of EU credit institutions (Bank Structural Reform, or BSR) and one on securities financing transactions (see dossier on Securities Financing).

The January 2014 proposal applies only to the largest and most complex EU banks. It would grant supervisors the power and, in certain instances, the obligation to require the transfer of other high-risk trading activities (such as market-making, complex derivatives and securitisation operations) into separate legal trading entities within the group (“subsidiarisation”) from 1 January 2018.

On 19 June 2015, after several months of negotiations, the Council reached an agreement on its position. The position introduced important changes to the original Commission proposal. It softens the original proposal as proprietary trading is no longer prohibited, but separated from the core credit institution. The proposal also incorporates a more flexibility to the approach by allowing discretion of the competent authorities (toolkit of supervisory measures to address excessive risk taking in trading activates).

On 26 May 2015 the Parliament rejected the report. The report was supported by 29 MEPs, with 30 against and no abstentions, meaning that no agreement has been reached. ECON did not adopt some key compromises, including those on the negative scope (Art 4), metrics (Art 5), proprietary ban (Art 6), and the separation modalities (Art. 10). The vote showed a big discourse between political groups. Parliament will resume negotiations in September 2015. Only if the Parliament reaches the agreement, trialogues (negotiations between the Commission, the Council and the Parliament) will start in order to reach a final text.

FW argues that it is fundamental in order to strengthen the financial system. While introducing the January 2014 proposal, Michel Barnier, former Commissioner for internal market and services, said: “This legislation deals with the small number of very large banks which otherwise might still be too- big-to-fail, too-costly-to save, too-complex-to-resolve. The proposed measures will further strengthen financial stability and ensure taxpayers don't end up paying for the mistakes of banks. Today's proposals will provide a common framework at EU level - necessary to ensure that divergent national solutions do not create fault-lines in the Banking Union or undermine the functioning of the single market. The proposals are carefully calibrated to ensure a delicate balance between financial stability and creating the right conditions for lending to the real economy, particularly important for competitiveness and growth".

Actions of Finance Watch

We have published several papers regarding the Bank Structural Reform. In our short note "Separating fact and fiction", we debunk a number of misleading claims about bank structure reform, and our Policy Brief "Separating universal banks from too-big-to-fail banks (TBTF)" illustrates the very different characteristics of Europe's small, medium and large banks. Another publication, "Too-big-to-fail (tbtf) in the EU", provides an overview of the EU financial regulations (passed or still in discussion) related to the too-big-to-fail issue and an assessment of what remains to be done.

There is also a detailed policy note on bank separation from April 2013 designed to be read by politicians and newcomers to the subject alike, and a technical factsheet on bank separation for journalists.