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| Version 2 | Version 3 |
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| EU says banks should split risky trading from banking | EU says banks should split risky trading from banking |
| (about 3 hours later) | |
| A European Union advisory group says that Europe's banks should be split into separate legal entities, in order to protect ordinary retail banking from risky trading. | A European Union advisory group says that Europe's banks should be split into separate legal entities, in order to protect ordinary retail banking from risky trading. |
| The review was set up to look at whether banks should be structurally reformed to avoid another crisis. | The review was set up to look at whether banks should be structurally reformed to avoid another crisis. |
| The group agreed that banks should separate certain high-risk banking activities from everyday banking. | The group agreed that banks should separate certain high-risk banking activities from everyday banking. |
| Banks likely to be affected include Deutsche Bank and BNP Paribas. | Banks likely to be affected include Deutsche Bank and BNP Paribas. |
| The report's suggestions echo those put forward in a report into the UK banking sector by Sir John Vickers and the Dodd-Frank act - particularly the Volcker rule - in the US, both designed to avert further financial crises in these countries. | |
| Support | Support |
| Europe's leaders see banking reform as going hand-in-hand with supporting the economy. | Europe's leaders see banking reform as going hand-in-hand with supporting the economy. |
| The EU's report also looked at the risks of lending on property, and recommends it should be underpinned with larger capital reserves. | The EU's report also looked at the risks of lending on property, and recommends it should be underpinned with larger capital reserves. |
| Lending too much to overvalued property was at the core of the banking crisis that led to the credit crunch. | Lending too much to overvalued property was at the core of the banking crisis that led to the credit crunch. |
| Ireland's over reliance on property, which helped it to thrive in the boom years, prompted it to ask for a rescue. It is also the reason Spain has asked for help for its banking sector. | Ireland's over reliance on property, which helped it to thrive in the boom years, prompted it to ask for a rescue. It is also the reason Spain has asked for help for its banking sector. |
| The report was prepared by a panel of banking specialists, chaired by the Bank of Finland governor Erkki Liikanen. | The report was prepared by a panel of banking specialists, chaired by the Bank of Finland governor Erkki Liikanen. |
| He said banks had been reckless: "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." | He said banks had been reckless: "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." |
| Bonuses | Bonuses |
| It also examined ways of spreading the risk burden of a collapsed bank to a wider group, so that bondholders, as well as shareholders and the state, would take some of the losses in future. | It also examined ways of spreading the risk burden of a collapsed bank to a wider group, so that bondholders, as well as shareholders and the state, would take some of the losses in future. |
| It suggested that bankers should accept such a bond as part of their bonus, the value of which would fall if risky trades or lending lost money. | It suggested that bankers should accept such a bond as part of their bonus, the value of which would fall if risky trades or lending lost money. |
| The report also says banks should have higher capital "buffers" to protect against future banking crises. | The report also says banks should have higher capital "buffers" to protect against future banking crises. |
| The report will be passed to EU internal markets commissioner Michel Barnier, who will make the decision on whether to present proposals in line with its recommendations and whose officials write the first draft of new laws. | The report will be passed to EU internal markets commissioner Michel Barnier, who will make the decision on whether to present proposals in line with its recommendations and whose officials write the first draft of new laws. |
| Mr Barnier said: "The Commission will look at the impact of these recommendations both on growth and on the safety and integrity of financial services." | Mr Barnier said: "The Commission will look at the impact of these recommendations both on growth and on the safety and integrity of financial services." |
| The report, which the group said should be discussed before the end of the year, is just one of a number of high-level reviews of the banking sector, which is around 8,000-strong across the 27-country European Union. | The report, which the group said should be discussed before the end of the year, is just one of a number of high-level reviews of the banking sector, which is around 8,000-strong across the 27-country European Union. |
| On Wednesday, the European Banking Authority will release its final report on banks' implementation of plans to establish temporary capital buffers. | On Wednesday, the European Banking Authority will release its final report on banks' implementation of plans to establish temporary capital buffers. |
| The EU is also moving towards banking union within the eurozone and is planning to have a eurozone-wide regulatory system, the Single Supervisory Mechanism (SSM), which it hopes will begin its work by the start of next year. | |
| It would allow the ECB to assume full supervisory responsibility over any credit institution, particularly those which have received or requested public funding, with all banks covered by the SSM by the start of 2014. | |
| The SSM needs to be adopted by member states' government ministers and MEPs. |