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EU signals shift on bank ringfence

EU commissioner Michel Barnier
EU commissioner Michel Barnier

European commissioner Michel Barnier has signalled he does not plan to force banks to ringfence their trading activities, as he calls for policymakers to switch the focus to growth.

The EU internal markets and services commissioner told the Financial Times at the World Economic Forum in Davos that separating banks’ trading operations into separately capitalised divisions risked stifling European growth.

The recommendation to ringfence banks’ trading operations has been put forward by Finnish central banker Erkki Liikanen, who led a panel commisioned by the EU to report on the future structure of European banks.

Barnier told the newspaper: “I do not want to penalise the work of banks when they work for the benefit of the economy and industry. Clearly a part of marketmaking is linked to supporting the industry and the economy.”

If the recommendation was implemented big European banks would face costly restructuring exercises which may put them at a disadvantage with US rivals.

But member of the Liikanen committee and Swiss bank Julius Baer senior adviser Marco Mazzuchelli told the FT it was dangerous to switch the focus to growth before fully addressing past problems.

He said: “There is a risk a complacency about the rebound in markets means regulators revert to type and avoid structural action in a co-operative way.”

Last month the Parliamentary Commission on Banking Standards, led by Treasury select committee chairman Andrew Tyrie, called for the Government to “electrify” bank ringfence rules with reserve powers that would force banks to fully separate their retail operations from their investment arms.

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