An advisory group set up by the European Commission has called for Europe’s biggest banks to keep their traditional deposit-keeping business legally apart from other, higher-risk activities. The recommendations intend to safeguard ordinary bank clients and savers from future banking crisis and to avoid further shocks to the banking system.
The Liikanen Group made the recommendations for the “legal separation of […] particularly risky financial activities from deposit taking”, as well as “activities closely linked with securities and derivatives”. The group was commissioned with reviewing the European banking system last year.
Experts say that ring fencing investment banking would protect retail sections of the bank that carry depositors’ money to continue operating in the event of a collapse of another arm of any given banking institution. Erkki Liikanen, chair of the committee and governor of Finland’s central bank, said the recommendations aimed “to limit the implicit or explicit stake of taxpayers in the trading parts of banking groups”.
Bank lobby groups have been critical of the report cautioning against too much structural change. “We do not believe that further changes to the structure of the banking industry are necessary,” said Simon Lewis, chief executive of The Association for Financial Markets in Europe.