The European Union (EU) looks set to ease banking reforms outlined in the 2012 Liikanen report that would have forced banks to split leading retail banking operations and capital bases from risky trading activities.
According to the Financial Times, which has seen a draft European Commission (EC) proposal, the split between retail and investment banking operations and positions would no longer be mandatory under the final proposals. Systemic risk trading, as defined by European Banking Authority (EBA) rules in the eurozone, would still need to be separated out, but corporate hedging trades would still be allowed on commercial bank books and pension funds and non-bank firms would be allowed to trade up against set limits imposed by Brussels.
The final proposals come after much lobbying and mean the post-crash reforms will be less costly and restrictive than first envisaged by a number of national regulators across the EU member states, with France, Germany and others thought to have been sceptical about the original harder split.
The FT newspaper also revealed that the EC has added its "narrowly defined" version of the US Volcker rule, which outlaws proprietary trading. The ban will apply to around 30 large banks in the EU, regardless of whether or not their deposit-taking is fenced off.
The proposals look set to form the final stage of the wide reform of the European banking industry, which have been in the pipeline since the financial crisis of 2008.
Leading finance ministers from across the continent worked to create the reforms and a way of dealing with failing banks at the end of last year.
By Claire Archer