European Commission unlikely to break up banks
Saturday October 24 2009
The European Commission is unlikely to go about trying to split up large financial institutions as a way of preventing another crisis, David Wright, deputy director of the commission's Internal Markets and Services said in Dublin yesterday.
Bank of England governor Mervyn King sparked a huge debate this week by saying banks needed to be broken up.
He argued that separating banks' utility-type services, such as payments and deposit-taking, from riskier investment banking activities would tackle the "too big to fail" issue. Mr King's remarks were rebuffed by British Prime Minister Gordon Brown and Chancellor Alistair Darling as not being appropriate for the 21st Century.
Mr Wright said: "I do not see the appetite for Europe to break up the big financial institutions at the moment."
Still, observers say that tougher international capital rules from the all-important Basel Committee on banking supervision, due next year, will produce similar results, as it will force lenders to set more aside for riskier business lines.
Mr Wright said that it was inevitable that borrowers would have to get used to more expensive loans as a result of higher capital requirements in the new regulatory environment.
"Capital might be more expensive. It might be more expensive to have a mortgage. More expensive capital might just be a good price to pay (for financial stability)," he said.
The commission is pushing for a two-pronged approach to regulation in future. It is looking to set up a new European Systemic Risk Board, which will monitor the EU and global financial system for potential threats to stability, issue warnings where necessary and monitor their implementation.
Secondly, there is the creation of a European System of Financial Supervisors, which is aimed at achieving greater coordination among national regulatory authorities, particularly with respect to how they approach institutions that cross borders.
Mr Wright said the EU intended to name and shame any authority that did not heed the risk board's warnings.
"We're going to publicise it and (the resultant) market pressure will be intense," he added.
He appeared to endorse the Irish Government's plans to re-merge the country's watchdog with the Central Bank to form the Central Banking Commission.
There has been sharp criticism over the past year that financial stability issues fell between two stools under the existing regime.
While much of the culpability for the crisis has landed at the feet of regulators, credit ratings agencies and bank boards, Mr Wright said large shareholders were also to blame.
- Joe Brennan
Irish Independent
