LUXEMBOURG—European Union finance ministers agreed on Friday a
draft law aimed at tackling the problem of too-big-to-fail banks
and shielding taxpayers from having to bail out large lenders.
The compromise, which still has to be agreed by the European
Parliament, isn't as far-reaching as the rules proposed by the
European Union's own experts a few years ago. In contrast to the
U.S. Volcker rule, which bans all banks from proprietary trading,
Friday's compromise would require the bloc's 30 largest banks to
split of such trades from their regular business.
The planned law, which would apply to banks whose trading
activities exceed €100 billion ($113 billion), is aimed at
addressing the problem of so-called too-big-to-fail banks, which
have benefited from lower funding costs because investors assumed
governments would bail them out rather than let them collapse.
Europe's 30 biggest lenders include Barclays PLC, Deutsche Bank
AG and France's BNP Paribas.
EU finance ministers, who gathered for their monthly meeting in
Luxembourg on Friday, backed the regulation, which could force
banks to rein in the proprietary trading and give national
regulators the power to sp lit off risky trading activities from
safer lending operations.
"We have today reached a sensible and pragmatic and proportional
compromise," said Jonathan Hill, the European Commissioner for
financial affairs.
The draft law "gives us another piece in the jigsaw of securing
financial stability," Mr. Hill added.
It seeks to harmonize laws that have already been adopted in
several EU countries to deal with too-big-to-fail institutions.
But in an apparent concession to the U.K., the law would exempt
countries if they already have similar legislation in place on
curbing trading risks and splitting their bank. The U.K. introduced
the 'Vickers rule,' which calls for banks to "ring-fence" their
retail-banking businesses from investment-banking activities.
Many banks have also warned that any radical move to break them
up might harm their ability to support Europe's weak economic
recovery, and spark an exodus of business toward more favorable
jurisdictions.
The commission proposed the new rules as part of a lengthy
overhaul of Europe's banking system in the wake of the financial
crisis, a process that encompassed larger capital cushions, bonus
caps for bankers and plans for a eurozone banking union.
Even though it has the backing of the 28 EU countries, the draft
law still has to be agreed by the European Parliament and can
change. European lawmakers failed to reach a common position on the
regulation in late May and are still working on reaching a
consensus.
Write to Viktoria Dendrinou at viktoria.dendrinou@wsj.com
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