EU backtracks on crackdown against 'casino' banking
The European Union's plans to ban banks taking market bets with their own money should be scrapped to avoid crimping the flow of funds needed for economic recovery, an EU document showed yesterday.
The European Commission has proposed a draft law to ban proprietary trading at banks and force lenders to isolate other forms of risky trading - dubbed "casino banking" after the financial crisis - from so-called "utility" banking to help keep the financial system stable.
Latvia, current holder of the EU presidency, wants to ditch the ban in the latest sign of how policymakers' attention is switching from regulation to reviving growth.
"The changes reflect the fact that there is a mandatory separation of proprietary trading rather than a ban," the document, seen by Reuters, said.
Even then, trading would have to trigger a host of quantitative and qualitative criteria for identifying excessive risks before actual separation would take place, meaning separation would not be automatic, the document added.
"Excessive risks are identified only after balancing the risks against the benefits to the real economy for market making," the document said.
Banks have warned that structural separation would exacerbate already thinning liquidity in some markets which policymakers are increasingly concerned about.
The sofetr line is backed by several member states, including France. "The debate on framing has to be envisaged in the broader context of the overall objectives of the regulation, in particular reducing excessive risks of trading activities and ensuring an appropriate treatment of market making, in line with the ECB opinion," France said.