The Impact of Banking Structural Reform on Household Retail Finance

On the basis of some of the findings of the Liikanen report on the EU banking sector (2012),1 on 29 January 2014 the European Commission (EC) adopted a proposal for a regulation to address the risks of complex business models combining retail and investment banking activities. Within these new rules, supervisors will be granted the power to forbid proprietary trading and to require the separation of other trading activities (such as ‘market making’) from traditional commercial and retail banking activities. If adopted by the European Parliament (most likely this autumn) and the EU Council, the new regulation on the structure of banking could be the last significant piece of regulation of the Commission’s extensive reform agenda for financial services.
 

There are two main objectives behind this proposal. On one hand, structural reform aims to enhance financial stability (the financial stability objective); on the other hand, the separation between high-risk trading activities and retail activities should be designed so as to support economic growth, by promoting lending to the real economy (the economic efficiency objective).

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