EU finance ministers not thrilled by US banking plan


If US President Barack Obama's plan to ban proprietary trading at some banks were to be applied in the European Union, it could be problematic for the bloc's universal banks, an EU document obtained by Reuters said.

EU finance ministers, following a call from the Netherlands which backs the US proposal, will discuss its possible impact on Europe at a meeting today (16 February), but no consensus is expected.

The plan, dubbed the 'Volcker rule' and drafted by White House adviser and former Federal Reserve Chairman Paul Volcker, stunned global markets last month and is already facing resistance in Congress.

EU countries were not consulted and complained that a global approach to rulemaking being spearheaded by the Group of 20 rich and emerging economies was at risk.

Britain, France and Germany have said the approach should not be copied in Europe, where many banks combine proprietary trading and commercial banking under one roof.

"Although members support the overarching aim of reducing build-up of risks in the financial system, they also emphasised the importance of a multilateral approach to financial market regulation to ensure the necessary level playing field," the document obtained said.

It was prepared for finance ministers by a committee of national treasury officials who met earlier this month.

"Members expressed their concerns that the application of the Volcker rule in the EU many not be consistent with the current principles of the internal market and universal banking," the document added.

The Volcker rule aims to tackle the "too big to fail" issue whereby banks whose failure would destabilise markets can assume they will be bailed out if in trouble.

Restricting the scope and size of banks could push risks to other parts of the financial system, the document said.

Obama also put forward proposals to make banks with over $50 billion in assets to pay a fee to repay taxpayers' money used to shore up the sector. It would apply to eight EU banks from the end of June if it goes ahead, the document said.

A senior official at the European Commission said on Monday that details of the Volcker rule were too sketchy to form an EU position, but that proprietary trading was only a small part of banking activities in any case.

(EURACTIV with Reuters.)

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