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Finance Watch Denounces EU Rejection of Bank Separation

Oct. 31, 2017 (EIRNS)—Finance Watch, an independent organization which describes itself as a defender of the public interest in financial matters, denounced the decision by the European Commission on Oct. 24 to withdraw its legislative proposal for Bank Structural Reform (BSR)—i.e., to stop any consideration for bank separation.

A press release from Finance Watch says:

"Separating systemically important banks’ retail and commercial banking from their investment banking activities should be a necessary element of overall financial regulation to address systemic risk and reduce the probability of another financial crisis."

The statement notes that supervisors and resolution authorities have been given power to at least be certain that the big banks "can be wound down in a crisis in an orderly manner and without triggering contagion." But, they continue,

"In practice, however, it remains to be seen if any of these new powers are exercised, let alone enforced, in the face of relentless resistance by the industry and rapidly declining political support."

Christian Stiefmueller, Senior Policy Analyst at Finance Watch, said:

"The demise of the bill is as regrettable as it was—by now—predictable. The fact that not even [EU Commission] Vice-President Dombrovskis’ intervention one year ago succeeded in reviving the effort is testimony to the iron grip the financial industry’s lobby still exerts on governments and legislators. Bank Structural Reform would have gone a long way towards solving the ‘too big to fail’ problem. Instead of taking preventive action to contain systemic risk and ward off future crises, we have, it appears, chosen to chance it. A great opportunity to make the financial system more resilient has been missed."

The statement continues says that bank separation (Glass-Steagall type legislation) would

"focus large banks on serving the economy again ... [and] cut the hidden umbilical cord by which public support for deposit banks is used to feed banks’ trading activities.... It would in fact avoid a situation where the short-term oriented, deal-based, investment banking culture can negatively influence the long-term, relationship-based culture of commercial banking; bring financial stability and prevent contagion between banks and make resolution possible for all banks—even the very largest. This greatly decreases the risk that taxpayers will once again have to bail out banks; avoid the economy seizing up if one investment bank fails. Separating all trading activities (not just proprietary trading) from commercial banking activities would make it easier for investment banks to fail safely."