Oct. 2 - An EU advisory group led by Bank of Finland Governor Erkki Liikanen recommends to split banks' retail business from their investment operations. Sonia Legg reports.
The UK has already ordered its banks to do it now the EU has joined in the splitting debate. Advisors are recommending separating deposit taking from trading to protect tax payers from further bailouts. Finland bank governor Erkki Liikanen led the group which examined bank structures. (SOUNDBITE) (English) HEAD OF EU-COMMISSION ADVISORY GROUP AND BANK OF FINLAND GOVERNOR, ERKKI LIIKANEN, SAYING: "This would ensure that trading activities beyond the threshold are carried out on a standalone basis and separately from the deposit bank. As a consequence the deposits and explicit and implicit guarantees that they carry would no longer directly support the risk of trading activities." The report has re-ignited the debate about European banking reforms but regulation any time soon is unlikely. The European Commission is concentrating on banking union - putting euro zone lenders under ECB supervision. Michel Barnier is its head of regulation. (SOUNDBITE) (French) EUROPEAN COMMISSIONER IN CHARGE OF REGULATION, MICHEL BARNIER, SAYING ACCORDING TO TRANSLATION: "We have to look at the fine-tuning, calibration if you like, of different elements. That is the commission's responsibility. And we have to listen to the reactions for six weeks now, the reactions of the partners, the stakeholders, of the banking industry, of consumers, of savers, of business." The recommendations borrow from policies elsewhere. Britain has decided to ring-fence retail banking while the US is curbing proprietary trading. The report also backs the idea of bail-in debt, a mechanism which imposes losses on bondholders. It also suggests bankers should accept bonds as part of the bonus. But that could mean they'll get them regardless of their bank's performance and any reward for failure may not go down well in the current financial climate. Sonia Legg, Reuters.