The Eurosystem welcomes the work carried out by the High-level Expert Group and considers the proposals set forth as providing important directional steps towards strengthening the resilience of the financial system and enhancing the resolvability of financial institutions in Europe. In this context, the Eurosystem also welcomes that the proposals aim at safeguarding the diversity of the EU banking sector and considers them to be compatible with the prevailing universal banking model in Europe. Diversity implies that different institutional forms, business and earnings models coexist which strengthens resilience and mitigates contagion vulnerabilities.
The Eurosystem is of the view that an impact assessment needs to be carried out as a matter of priority in order to gauge the possible impact of the proposals in the EU. Indeed, the proposals set forth in the report may have a significantly different impact across the EU given differences in the structure of the banking sectors. This may have different consequences in terms of divergent funding costs as well possible unintended consequences namely on the real economy of Member States. This needs to be assessed. Moreover, the analysis should be comprehensive, thus also taking into account the impact of measures currently being developed by the Basel Committee on Banking Supervision as well as by the European Banking Authority concerning, inter alia, the treatment of market risk in the trading book, large exposures, review of the standardised approach. The specific observations below should be seen against the background that this impact assessment has been carried out with positive results.
Finally, the Eurosystem notes that the introduction of structural measures is a topical issue which is currently being considered not only within the European Union but also internationally. In some cases decisions have already been taken, namely in the United Kingdom and the United States. Given that these measures are primarily addressing internationally active banks, the Eurosystem considers it important that coordination and consistency is pursued in this area both at the European and international levels in order to avoid regulatory arbitrage and ensure a level playing field for financial institutions that are active across jurisdictions.
In the second part Eurosystem addresses the five recommendations of the Liikanen report, namely the:
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introduction of mandatory separation of proprietary trading and other significant trading activities to a separate legal entity within the same banking group;
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wider structural separation conditional on supervisory judgement based on a resolvability assessment;
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designation of dedicated bail-in instruments;
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increase of non-risk weighted capital buffers for trading activities and stricter requirements for real estate lending; and
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strengthening of governance and control of banks.
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