09 January 2014

Reuters: EU plans for trading rules widen global gap in bank regulations

Banks were pleased by the news that Europe would impose less restrictive rules on trading than the US, but the announcement proves that global regulations are likely to remain inconsistent, despite pledges to unify them.

The latest example of poor coordination was this week's leak of EU plans from the bloc's financial services chief Michel Barnier to stop banks from making bets with their own money, known as proprietary trading.

The US version, finalised last month, defines proprietary trading broadly, forcing banks to spin off such operations. The EU plans define it far more narrowly, giving supervisors and banks potentially more leeway. Adding to the confusion and the cost of compliance, the three biggest EU economies, Germany, France and Britain, are writing their own separate rules.

France and Germany in particular will not accept their universal banks like Deutsche Bank and BNP Paribas being split up. Carsten Schneider, a senior politician from Germany's SDP party in the new coalition government, said that as outlined so far, the EU plans would be a big step backwards.

The EU and United States are at loggerheads over the foreign reach of American rules to make derivatives safer. Europe has criticised US plans for forcing the US arms of foreign banks to operate as subsidiaries, which would require them to hold a separate buffer of capital in the United States as well as back in their home country, adding to costs.

Europe meanwhile is implementing the new Basel III global bank capital rules differently. It is introducing the world's toughest rules on banker bonuses, which will impact both the European operations of US and Asian banks and the American and Asian operations of European banks.

The United States has declined to adopt a G20 pledge for a single set of global accounting rules, and US regulators are questioning the need for a common global capital rule for insurers, as proposed by the G20.

The G20 summit in Australia this year will finalise rules for "shadow banks" like money market funds. But the EU and United States are already taking different approaches. 

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© Reuters