The chair of the European Union’s banking reform group has warned that banking reforms across Europe need to be compatible to avoid negatively impacting on the international markets.
Speaking to members of the Parliamentary banking commission, Erkki Liikanen said:
“It’s important to have some basic, common solutions… it is important they [differences]don’t have negative impact for the international markets.”
“The European international market has to benefit. When you [play]the same rules, they have benefit.”
It was important to “justify” flexibility in how individual countries adopted international banking reforms.
UK and European banking reforms are “not identical but there are elements which are compatible”, he added.
Proprietary trading needed to be treated with caution, Liikanen warned, so that the activity wasn’t driven out of reach of financial regulation.
“We don’t want to push proprietary trading out of the regulatory field” he said.
Liikanen, who is governor of the Bank of Finland, chaired the high-level expert group on structural bank reforms as established by the European Commission.
Liikanen’s group published their report early in October, calling for a ring-fence between investment banking and retail banking activities along similar lines to that recommended by the Independent Commission on Banking.
Tory MP Mark Garnier, one of the Parliamentary commission members, complained to Liikanen about the breakdown in trust between high street banks and their customers.
“If you go back to the halcyon days of the 1950s and 60s, perhaps you had a time when a high street bank was very much the pinnacle of the high street… the business relationship with the customers was a long-term relationship. Now… high street banks are there simply to sell a product and an extreme example of this is the interest rates swap that is emerging at the moment in the UK.”
Liikanen agreed that banks should be “like any industry”.
“Shareholders control the company, debt holders should have responsibility. Taxpayer should be last or even never have responsibility for [failure].”
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