19 June 2015

Restructuring risky banks: Council agrees its negotiating stance

Tackling excessive risks 

The draft regulation is intended to reduce excessive risk taking and prevent rapid balance sheet growth as a result of trading activities. It sets out to shield institutions carrying out activities that deserve a public safety net from losses incurred as a result of other activities. It provides for the mandatory separation of proprietary trading and related trading activities and establishes a framework for competent authorities to take measures to reduce excessive risk taking. 

Trading activities other than proprietary trading would be subject to a risk assessment. If a competent authority finds that an excessive risk exists, it could require trading activities to be separated from the core credit institution, or demand an increase in the core credit institution's own fund requirements, or impose other prudential measures. Trading entities would be prohibited from taking retail deposits eligible for deposit insurance. 

Scope 

According to the Council's text, the regulation would apply to global systemically important institutions (in accordance with directive 2013/36/EU on capital requirements) or to entities with total assets of at least €30bn over the last three years and trading activities of at least €70 billion or 10% of their total assets. These banks would be allocated into two tiers, depending on whether the sum of their trading activities during the last three years exceeds €100 billion or not. Stricter reporting requirements, a more thorough risk assessment, and different supervisory actions would apply to banks exceeding the threshold. 

The regulation would not apply to institutions with total eligible deposits (under directive 2014/49/EU on deposit guarantee schemes) of less than 3% of their total assets, or total eligible retail deposits of less than €35bn. 

As proposed by the Commission, it would also not apply to sovereign debt instruments. But in the Council's text, a review clause has been further elaborated to specify that the Commission would review this exclusion taking into account developments at European and international level. 

National regimes 

To accommodate existing national regimes, the Council text provides two options for addressing excessive risk stemming from trading activities: This could be done either through national legislation requiring core retail activities to be ring-fenced, or through measures imposed by competent authorities in accordance with the regulation. 

Liikanen report 

The draft regulation builds on the recommendations of a report published in October 2012 by a "high-level group" chaired by the governor of the Bank of Finland, Erkki Liikanen (the "Liikanen report"). 

Full press release

Full proposal

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