Bloomberg Business by Julia-Ambra Verlaine

  • France criticized the compromise for excessively narrow focus
  • Law shouldn’t creation distortions between banks, Goulard says


Progress on a European Union bill intended to tackle too-big-to-fail banks has faltered after a tentative compromise in the bloc’s parliament fell apart, dealing another setback to lawmakers trying to revive legislation that’s been kicking around in Brussels for nearly two years.

Pursuing a new deal on the bank structural reform legislation is a “positive move,” as it recognizes the consequences of a bill with a “too-narrow scope and a very ambiguous procedure,” said Sylvie Goulard, a French member of the European Parliament. “Many colleagues are realizing that EU regulations should not create distortions between banks depending on where they are based in the single market.”

France criticized the compromise reached in October for favoring “U.S. corporate and investment banking giants over their European counterparts,” and failing to meet the “objective of curbing trading risks in globally and domestically systemic banking groups,” according to an internal document obtained by Bloomberg that sets out the government’s position.

The European Commission, the EU’s executive arm, presented a draft bank-structure plan in early 2014. It would require the bloc’s biggest banks to be screened by the central bank or another agency that supervises them. Separation of investment and consumer banking would take place if the firms were found to exceed certain levels of trading and risk-taking, with some limited room for supervisors to grant an exception if the bank proves that there is no risk to financial stability.
‘Not Acceptable’

The Council of the European Union, which represents national governments and forms one half of the bloc’s legislature, reached a negotiating position on the bank-separation bill in June. Before talks can begin on a final version of the draft law, the parliament must arrive at its stance, beginning in the Economic and Monetary Affairs Committee.

Manuel Valls, France’s prime minister, said on Nov. 4 that the compromise reached by negotiators for the parliament’s two largest political groups effectively singled out three banks in two countries, France and Germany. “This is not acceptable,” he said. The Group of 20 nations “identified about a dozen systemic banks in the European Union.”

The French document also states that under the October compromise, EU subsidiaries of foreign banking giants would be covered only “optically,” and in fact exempted “from all the provisions aiming at separation or capital add-on. This effectively means that large, global investment banks affected by trading scandals such as the ‘London whale’ would not be affected” by the legislation, according to the document.