Germany, France attack EU plan to curb bank trading - doc

LONDON Thu Jan 23, 2014 10:12am EST

LONDON Jan 23 (Reuters) - Germany and France have attacked European Union plans to curb mega banks, warning that this could crimp a delicate economic recovery, a paper seen by Reuters showed.

Next week, the European Commission will unveil a blueprint to challenge the power of big banks, tackling one of the biggest risks exposed by the financial crisis.

The paper does not name Germany and France as authors but five financial industry and government sources told Reuters the two and Italy, were behind it.

The European Commission is due to formally propose the draft law to rein in risky trading on January 29, to apply lessons from the 2007-09 financial crisis that forced taxpayers to bail out lenders that had taken excessive risks.

Leaked versions of the draft law propose banning proprietary trading at banks above a certain size.

Proprietary trading refers to banks taking bets on markets with their own money rather than a client's. Other types of trading such as complex securitisation and derivatives may also have to be separated from a bank's deposit-taking arm.

"This approach could result in a lot of activities useful for the financing of the economy ceasing to be provided by European banks and migrating to third country players or to the shadow banking system, jeopardizing the financing of the economy in a crucial recovery phase," the paper says.

The German and French finance ministries had no comment. Italy's representation in Brussels did not immediately respond to a request for comment.

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