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EU - High-level Expert Group on reforming the structure of the EU banking sector October 2012 - January 2014 reprint
Commissioner Michel Barnier established a High-level Expert Group on structural bank reforms in February 2012. Our task has been to assess whether additional reforms directly targeted at the structure of individual banks would further reduce the probability and impact of failure, ensure the continuation of vital economic functions upon failure and better protect vulnerable retail clients.
We organised hearings with a large number of stakeholders who represented providers of banking services, consumers of such services, investors in banks, policymakers and academics. The Group has furthermore held a public consultation of stakeholders, the responses to which are published together with this report.
In evaluating the European banking sector, the Group has found that no particular business model fared particularly well, or particularly poorly, in the financial crisis. Rather, the analysis conducted revealed excessive risk-taking – often in trading highly - complex instruments or real estate-related lending –and excessive reliance on short-term funding in the run-up to the financial crisis. The risk-taking was not matched with acdequate capital protection, and strong linkages between financial institutions created high levels of systemic risk.
A number of regulatory reforms have been initiated to address these and other weaknesses that endanger financial system stability. The Group has reviewed these on-going regulatory reforms, paying particular attention to capital and liquidity requirements and to the recovery and resolution reforms.
Stronger capital requirements will enhance the resilience of banks. The implementation of the new Capital Requirement Regulation and Directive (CRR/CRDIV) will constitute a major improvement in this respect. Connected to its mandate, the Group also expects the on-going fundamental review of the trading book by the Basel Committee to improve the control of market risk within the banking system.
The Group sees the Commission's proposed Bank Recovery and Resolution Directive as an essential part of the future regulatory structure. This proposal is a significant step forward in ensuring that a bank, regardless of its size and systemic importance, can be transformed and recovered, or be wound down in a way that limits taxpayer liability for its losses.
The Group then had to assess, whether additional structural reforms are needed.
As the work progressed, the Group considered two possible avenues in more detail. The first avenue was based on the important role of recovery and resolutions plans and left the decision on the possible separation of banks’ activities conditional on the assessment of these plans; it also included proposals to tighten capital requirements. The second avenue was based on the mandatory separation of banks’ proprietary trading and other risky activities.