Nicollas Hirst writes: MEPs will revisit the causes of the 2008 financial crisis on Wednesday (21 January) as they debate new rules that could lead to some of Europe’s largest banks being broken up.
Centre-left and Green members will accuse the centre-right of being unwilling to take on banks that they describe as “too big to fail, too big to save and too big to resolve”.
Many MEPs believe that the revision of the law advanced by Gunnar Hökmark, who is the European Parliament’s lead rapporteur on the matter, ignores the lessons of the financial crisis, namely that risk-taking universal banks – like Royal Bank of Scotland was in the UK, or Bankia in Spain – pose a systemic risk to European economies.
By contrast, Hökmark, a Swedish centre-right MEP, argues that universal banks ought to be cherished rather than broken up. Would this levae us with “ineffective shell regulation”?
Perhaps the MEPs’ first priority should be to ensure investment and growth for the real economy. But the landscape of the banking sector has changed considerably since Erkki Liikanen, Finland’s central bank governor, recommended that all banks over a certain size be broken up in a 2012 report for the European Commission.
Michel Barnier, the European commissioner for internal market and services 2010-12, rowed back from this, proposing a year ago that the European Central Bank should have the power but not the obligation to break up banks over a certain threshold.
Hökmark , who was also the rapporteur for the proposal that set out last year how member states should restructure failing banks, in the wake of several costly bank failures, is adamant that the EU should concentrate on reviving investment in the economy and not making it more difficult for big banks to provide it.
He warns against attempting to imitate the banking model of the United States when the European system has developed over hundreds of years.
Christophe Nijdam, secretary general of Finance Watch, disagrees. “‘Too-big-to-fail’ banking […] distorts incentives so that Europe’s megabanks are more focused on financial trading than on financing commercial investments,” he said in a statement.
Hökmark’s EPP does not have a majority on the committee for economic and monetary affairs, with 18 MEPs out of 61. The S&D has 16 MEPs on the committee, the Liberals have five, the Greens have four and the European Conservatives and Reformists have five. Hökmark expects a committee vote on the proposal at the end of March or in April.
