Bank reform is gathering pace

From Mr Elemér Terták.

Sir, Sony Kapoor’s remarks (“Europe must reset bank rules to restore investor faith”, Insight, February 14) are surprising, disregarding both the content of the Liikanen report and the ambitious reform of the financial sector being implemented in Europe. I am afraid he has been misled by a recent article in a certain newspaper and has not studied the facts and Commissioner Michel Barnier’s statements. There is no question of a “U-turn” on structural separation of banking activities. The European Commission is assessing the Liikanen Group’s recommendations, along with other options for structural separation. A legislative proposal is planned for this summer.

Five years into the crisis, the EU has produced a strong set of reform measures: a comprehensive plan for bolstering banks’ prudential requirements, implementation of the Basel III agreements (CRD IV), a state of the art framework for bank recovery and resolution, a major forthcoming initiative on the structure of banks following the Liikanen report, a banking union for the eurozone and other member states wishing to take part.

The single supervisory mechanism, the first step of the banking union, is about to be put in place in record time, and will lead to stricter, more impartial supervision of the banking sector. It has rightly been hailed as a breakthrough defying sceptics and doomsayers in Europe and elsewhere. In parallel, the European Banking Authority has led a successful recapitalisation exercise of European banks.

The EU is also well advanced in reforming other aspects of the financial sector: over the counter derivatives, credit rating agencies, alternative investment funds and shadow banking. These reforms are having a much needed impact on financial services.

Of course reform takes time. The EU acts by agreement between the European parliament and member states. Vested interests deploying vast resources in advocating dilution and delay have to be resisted. Still, final agreement on the CRD IV prudential rules is but weeks away, far ahead of many other Group of 20 jurisdictions. On bank resolution and deposit guarantee schemes, the proposals are on the table and the regular democratic process of adoption is proceeding apace.

It is somewhat rash to genuflect to US reforms. The 2010 Dodd-Frank Act was not the end of the US financial regulatory reforms, but rather the beginning. The Act calls for a large number of still awaited implementing acts. Basel III has not been implemented there yet, although Commissioner Barnier has received assurances from his US counterparts that it will be implemented shortly.

Elemér Terták, Principal Adviser to the Director General for Internal Market and Services, European Commission