Too big to fail: Structural Reform of EU Banking Sector

The sheer size and complexity of EU banks was one of the biggest problems during the crisis. They are too big to let them fail. A reform proposal is trying to change this.

How did we get here?

The youngest economic and financial crisis was also caused by the sheer size and complexity of banks in the European Union. These financial players had become increasingly larger and more essential to the financial and economic system, so that politicians seemed unable to let them go bankrupt not knowing the consequences for the European economy. Thus, many banks had to be saved with taxpayer money.


Why is this important for me?

The new rules (together with many others) aim at avoiding an economic and financial crisis like this one from ever happening again. Banks have to reduce their engagement in particularly risky activities in order to avoid that they have to be saved with taxpayer money once again. With additional accompanying measures concerning the shadow banking sector, then Commissioner Barnier tried to keep certain financial transactions from being transferred into shadow banking as a way to circumenvent the new rules for the conventional banking sector.


What's the content?

Michel Barnier, former European Commissioner for Internal Market and Services, published a proposal to reform the EU banking sector. It tries to stop the biggest and most complex banks from engaging in the risky activity of proprietary trading - meaning the trading of financial products among banks themselves. However, these rules will only apply to the 29 biggest banks in the EU.

Furthermore, a compulsory separation of trading activities - meaning that investment banking within a bank is completely separated from the day-to-day business - as proposed by the preparatory Liikanen Report, published by a high-level expert group in 2012 - was not part of the proposal by former Commissioner Barnier. The new rules may only give to financial markets supervisors the power to require banks to separate certain potentially risky trading activities from their deposit-taking business. In addition, Barnier has also proposed accompanying measures aimed at increasing transparency of transactions in the shadow banking sector.


What's happening with this legislation in the future?

In May 2015, the draft report - shepherded by the Swedish MEP Gunnar Hökmark - was rejected in a vote in the Committee on Economic and Monetary Affairs (ECON) with 30 votes against and 29 in favour. Hökmark’s draft had some 90 amendments to the Commission’s original proposal, allowing for more national discretion concerning regulation. The rapporteur feared over-regulation, but other MEPs thought the bill was too toothless. Now the legislation has to be re-shaped by the committee - with its first failure showing the difficulty of building consensus around such complex financial issues. In the meantime, Member States have already agreed on a common position. Now, we are waiting for progress...


Related Bills:

Financial Transaction Tax: Making banks pay for the crisis

Access to a Basic Bank Account for Everyone

Public list of company owners to fight money laundering

politixNew visa rules for EU travellersReduced share of biofuels in energy mixFruit, vegetables and milk for European StudentsBan on all kind of driftnet fisheriesA European Platform to fight undeclared workA pan-European Pension System Fighting the trafficking of firearmsA New Waste Management System in the EUFinancial Transaction Tax: Making banks pay for the crisisLess Plastic Bags for EuropeEliminating roaming, securing net neutralityRight2Water: Water and sanitation as human rightEnforceable Flight Rights for Air PassengersPublic list of company owners to fight money launderingMore Possibilities for the Restriction of GMOsEuropean Solidarity CorpsTightened rules for safer and cleaner carsSafer Ship TravelsProtecting fish and marine ecosystemsUpdated European data protection laws Resettlement of Migrants in the EUSafety standards for new kinds of CablewaysCheaper cross-border Parcel DeliveryCross-border enforcement for speeding & traffic offencesEU-wide Minimum Standards for FrackingEuropean statistics relating to persons and householdsUpdated Rules for Audiovisual MediaNew Food Labeling RulesAccess to a Basic Bank Account for EveryoneA New Copyright Regime for EuropePollen as specific 'Ingredient' or Natural Honey Component?Circular Economy: Reducing waste in EuropeRules for cross-border divorcesBetter Management of Asylum FlowsAn Entry-Exit System for External European BordersResolution on Sexual and Reproductive HealthStronger Rules against Terrorism Financing and Money LaunderingCloning of animals New Rules for Tobacco Products and PackagingOrganic production and labelling of organic productsSimpler Rules for VAT in EcommerceLess Greenhouse Gas Emissions for the EUUpdated rules on 'novel foods'Free Wi-Fi for EverybodyEnsure safe and secure air travelBetter Checks of EU Citizens at External BordersUse of Flight Passenger Data Posting of workersBetter Connectivity and super-fast InternetReduced Flush Volume for ToiletsNew rules on privacy in electronic communicationMinimum standards for children accused in courtMore Security in EU Partner CountriesBetter Cooperation among Consumer Protection AuthoritiesEuropass - Better online tools for your job huntStricter Rules for the Export of potentially Dangerous GoodsBetter Protection from Cancer at WorkStrategy Against Discrimination of LGBTI Persons Better protection for children of international couplesCreation of a European Union Agency for AsylumNew consumer rules when (online) shoppingProviding Services more easily across bordersA new electoral law for the European ParliamentBetter access to books for the blindBetter EU access for highly skilled workersCross-border portability: Access to streaming services from abroadMaking products & services more accessible for disabled peopleReducing pollutant emissions from carsConsumer rights for downloads and streaming services Improving the exchange of information on criminalsGeoblocking: Less consumer discrimination onlineBetter energy labels on electronic productsUpdated energy efficiency rulesA European ESTABetter protection for your moneyEuropean Year of Cultural Heritage 2018Creating a European Border and Coast GuardWork-Life Balance for allMore renewable energyEmpowering electricity consumersReducing administrative burden for EU citizens