Saturday, 13 July 2013

EU banking structure reform is overhyped

The Hamburg based World Future Council (WFC) responded to the public consultation on a reform of the structure of the EU banking sector.

Key messages of the WFC response in brief:

● The separation of banking activities cannot efficiently cope with severe problems like high leverage and excessive risk taking. It can only flank and should not neglect effective measures such as debt brakes for the financial sector, a preventive testing of financial innovations (finance TÜV) and a scalable financial transaction tax to slow down systemically risky volatility.

● There is neither evidence nor plausibility that the reduction of intra-group subsidies through separating deposits from trading activities will lead to shrinkage of the financial sector. Banks refinance themselves primarily, if not solely, through lending activities within the financial sector. Pro-cyclical and opaque credit intermediation chains and overly complex financial innovations make appropriate risk premiums impossible.

● Possible shifts to non-bank finance must not serve as an excuse for weak bank regulation but rather be integrated within an overall approach. This is exactly the purpose of debt brakes for the financial sector, a finance TÜV and a scalable financial transaction tax.

● In view of the limited impact of ring-fencing or separating banking activities as such, full ownership separation such as in the Glass Steagall Act of 1933 is the clearest approach.

Please find the complete response >>>here.

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