The project is one of the cornerstones of European progressives, who see the universal bank as a model to fight. Even many conservatives seem to be convinced of the goodness of separating savings collection activities from investment activities. Hence the birth within the EU of the group of experts led by the Finnish central banker Erkki Liikanen, who, last October, presented the final proposal of the work team to the Commission. It also included the mandatory separation between trading and the rest of the banking business, should the intermediation volume exceed 100 billion or 15-25% of the bank's assets. Separate trading and custody businesses may coexist in the same bank, but will need to be funded and capitalized separately.
It is precisely on the basis of that report that the governments of France and Germany jointly decided last January not to wait for the formal proposal from the Commission, scheduled for next autumn, but to act and immediately approve some legislation that would indicated direction. The choice of Paris and Berlin did not please the association of German banks (BdB), which already at the end of last month had warned against solitary choices by some European governments. In Italy, on the other hand, the former Finance Minister, Giulio Tremonti, likes the idea, while in Great Britain the process for approving the law on ring-fencing will be ready at the end of the legislature (2015).
London was the first European country to run for cover and to adopt a solution, so to speak soft, that is, without completely upsetting the system based on universal banks. Even the ECB had intervened at the end of the month and, without disavowing the commission's recommendations, had asked for well-considered measures by national governments. In neither of the two jurisdictions, neither in the French nor in the German one, will investment banking in any case be completely separated from savings and credit collection activities. In Germany, the Christian-liberal cabinet has approved a bill which, once approved by Parliament, will apply from mid-2014 to those institutions that have assets exceeding 90 billion or whose risky assets exceed 20% of the which will result in the attribution to a different legal entity of proprietary trading, high-frequency trading and hedge fund activities.
This means that the law will particularly affect Deutsche Bank, Commerzbank and some Landesbanks. Although the German supervisory authority argues that the scope of the law could be wider. The move by the German government, which it had already announced last autumn, is more linked to the current electoral campaign. The Christian Democrats want to steal the classic themes of progressive rhetoric from the Social Democrats. That is why the SPD hastened to make known its dissatisfaction with the bill, considered too weak. According to the Fitch rating agency, on the other hand, there would not be many advantages in terms of improving the rating of institutions subject to the regulation. On the contrary, the risk is that the separation actually causes an abandonment of certain activities, thus jeopardizing the success of the two financial centers of Paris and Frankfurt.
However, there are also popular banks, cooperative credit banks and savings banks on a war footing, which underline how the model of the universal bank has given good evidence of resistance during the crisis. Not to mention that the European legislator is still examining the results of Liikanen's study on an empirical level. Greater prudence, say the leaders of the German and French banking world, would have been welcome. The response of the BaFin, the German supervisory authority, is no different, according to which the regulation could help to make the interweaving of interests of a credit institution less complex, but would also contain the risk of the emergence of unregulated shadow banks, which they would only displace the problem, not solve it.
