FRANKFURT Dec 27 The European Commission plans
to ban proprietary trading at large banks and may force lenders
to ringfence all trading activities deemed a threat to financial
stability, Sueddeutsche Zeitung said in its Saturday edition.
Moves to curb so-called proprietary trading seek to end a
high-risk trading strategy used by investment banks to place
large directional bets on their own balance sheets, rather than
on behalf of clients.
Citing a draft proposal of European bank safety rules,
Sueddeutsche said European banks would not be required to
conform to the new rules until March 2020.
Around 29 banks would be impacted by the ringfencing rules,
Sueddeutsche said, adding that smaller financial institutions
may still be allowed to continue with such trading strategies.
Regulators will decide which banks need to separate their
high-risk trading divisions from other deposit taking
operations, Sueddeutsche further said.
The European Commission is finalising its own proposals
following recommendations from an advisory group led by Finnish
central banker Erkki Liikanen. That report, published in October
2012, recommended mandatory separation of a bank's proprietary
trading operations from client deposits, along with higher
capital requirements on trading assets.
The Liikanen group came up with the idea of a legal
separation between commercial and investment banking operations
in an attempt to shield taxpayers from having to fund further
bailouts and to protect savers from any more banking collapses.
Efforts to impose such a separation of risky trading
activities have sparked uproar among some lenders worried that
the cost of new rules will stifle lending to the real economy.
European countries are reforming their banking systems to
prevent a repeat of the 2008 financial crash, trying to strike a
balance between popular calls for banks to be reined in and
warnings that too tight a leash will choke off economic growth.
(Reporting by Edward Taylor; Editing by Leslie Gevirtz)