Europe won't follow the US route to reduce risk in sector
THE European Union will not imitate US president Barack Obama's plan to limit banks' size and trading activities, because it aims to reduce risk in the sector through other means, an EU source said last night.
"We understand Obama's reasons but I can't see the EU going down this route," said the source, who is close to financial policy makers in the EU.
"The US is a little behind us on this. The Obama plan is not fit for the purpose in the EU."
Obama's dramatic proposals, announced on Thursday, would prevent banks from investing in, owning or sponsoring hedge funds or private-equity funds, and would set a new limit on the size of banks in relation to the financial sector.
They could also bar institutions from proprietary-trading operations, which are unrelated to serving customers, for their own profit.
But the EU source said the 27-nation bloc would instead focus on raising banks' capital requirements and tightening financial regulation.
Last year, the EU proposed draft laws, expanding official supervision of the financial industry across the bloc and raising the requirements for capital that banks must set aside to cover risk in their trading books.
"The US is one market, the EU is 27," said the source. "We are trying to encourage cross-border financial services and consolidation in both national and transnational markets. The Obama plan would be anti-competitive in EU terms."
The source said most top banks in the world were American or had roots there, so it was understandable that Obama wanted to curb their size.
"The EU does not have so many 'too-big-to-fail' institutions. We've already started restructuring, forcing banks to downsize, sell off units and open up to newcomers.
"These plans have only just started to bear fruit, so we'll continue with this approach and see how things play out."
Publicly, senior officials in France, Britain and Germany offered support on Friday for Obama's plan but stopped short of saying they would follow suit.
"He's developing a solution to what he sees as the American issues, we've already taken the necessary action in the UK," said the British treasury minister, Paul Myners.