The FT reports that George Osborne will today make clear that any bank which attempts to circumvent the ringfencing rules, proposed as part of the Vickers Report and published today in the form of the Banking Reform Bill, faces the prospect of separation in full by the Bank of England.
This is a link to an article in today’s Financial Times (subscription required) regarding the progress of an on-going review into the structure of EU banking.
The Liikanen Review was established in November 2011 by Michel Barnier, the EU single market commissioner. It ‘s remit was to examine the need for structural reform of the banking sector within the EU and it is due to report in October 2012. Early indications are that it may recommend that any bank which exceeds a specified threshold of trading assets, calculated as a proportion of total assets, should be obliged to establish a separately capitalised subsidiary to house those assets, along this lines recommended by the Vickers Report in the UK. It is thought that this percentage could be as low as 5%.
However, the members of the committee conducting the review do not appear to be unanimous in their support of this recommendation and it is thought that a compromise proposal may yet emerge. Under this compromise, a bank may be required to create a ringfenced entity only if it came close to failure. The trigger for ringfencing would be documented within the bank’s Living Will. Quite how this compromise would work in practice is difficult to see.