December 18, 2012 6:15 pm
French officials like to tout their banking reforms as the most advanced in the world. If they were to put them in place today that might be true, but there are several other initiatives – notably in the UK, the wider European Union and the US – that are further down the road towards implementation.
● The EU idea, as espoused by the Liikanen review three months ago, is to force groups with a “universal” model – comprising investment banking and retail banking – to “ringfence” almost all of their trading operations within separately capitalised and funded subsidiaries.
French banks would be hit hard, and have lobbied vigorously in Brussels to stop the plan being implemented. Michel Barnier, the EU commissioner responsible for the issue, has sounded undaunted from pressing ahead, saying last month that if France’s homegrown reforms were modest, “it doesn’t prevent the European framework from being more ambitious”. One person close to the process said on Tuesday: “[The French] think they can get away with this light version but they are implicitly admitting that trading activity is excessive so they are opening the door for fully-fledged Liikanen.”
● The UK plan, contained in the Vickers Commission report of last year, is currently on its way through the legislative process. The idea centres on another kind of “ringfence”, which would isolate the other side of the bank, safeguarding its retail activities. Banks in Britain have lobbied against the changes, too, but with little success, although a parliamentary review of the plan, due on Friday, may recommend concessions around the inclusion inside the ringfence of some investment banking products for smaller companies.
● The nearest thing to the French reform is the US Volcker rule, which bars banks from trading securities on their own account. Although the rule has yet to be formally implemented in law, US banks have already closed down their so-called proprietary trading desks. But, in a cautionary tale for France, the detailed rules have proved nightmarish to draft, with no one able to agree on what exactly constitutes “prop” and what constitutes the holding of sufficient liquid securities to allow for efficient marketmaking.
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