* Big banks grow despite financial crisis
* EU reform will not split their business
* Germany and France oppose any break up of big groups
By John O'Donnell
BRUSSELS, Jan 29 Europe will unveil a blueprint
to challenge the power of big banks on Wednesday but critics
believe it will change little as it does not strictly separate
multi-billion-euro market bets from savers' money.
After the collapse of Wall Street's Lehman Brothers in 2008,
world leaders pledged to tackle banks that were "too big to
fail". Yet throughout the crisis, many of Europe's top banks
continued to grow.
On Wednesday, the European Commission will outline its
proposals for a new law, including a ban on trading by banks
using their own funds, which has already been much reduced.
It will also suggest isolating other types of trading from
the 'safe' side of banking - taking deposits.
Even if agreement is reached, which is also in doubt, the
rules would take effect from 2017 or later - roughly a decade
after the start of the banking crisis in Europe and some two
years after similar action in the United States.
The foot-dragging illustrates the fading political will to
push tougher reform in the face of opposition from Germany and
France, both determined to protect their flagship lenders.
Wolfgang Schaeuble, Germany's finance minister, said on
Tuesday that he had urged the Commission to "think carefully"
when drafting the new law.
Pressure from Paris and Berlin appears to have worked. Sven
Giegold, an influential German lawmaker in the European
Parliament, said Michel Barnier, the commissioner in charge of
drafting the law, had backed down.
"Barnier couldn't bring himself to go up against France and
Germany," he said. "The resulting law is bureaucratic and
ineffective. Rather than saying certain types of business should
be separated, there are loads of exceptions."
He and others believe the law will do little to address the
vast scale of big banks, blamed for risky trading and growth in
the multi-trillion dollar derivatives market.
The draft law draws on advice from a group lead by Finnish
central bank governor Erkki Liikanen.
He suggested mandatory separation of banks' "proprietary"
trading with their own funds, and other market betting, into a
different legal entity. It would have its own capital to cushion
risks but would remain within the bank.
On this count, the EU draft law is set to go further, and,
like the Volcker Rule in the United States, ban banks from
engaging in such trading, which has shrivelled in any case.
The U.S. rule, however, applies to all banks, while in the
EU it will only apply to lenders above a certain size, taking in
the top 30 or so banks.
In the EU draft, other types of trading, such as
derivatives, should be put in a separate division.
Crucially, however, the EU law stops short of physically
breaking up big banks into retail and wholesale units, a step
critics say is needed to remove the too-big-to-fail threat.
France resisted interference in the structure of its big
banks, including BNP Paribas and Credit Agricole
, which Paris sees as "national champions" critical in
financing the economy.
Berlin defended Deutsche Bank. It has total
assets of more than 1.6 trillion euros - two thirds the size of
Germany's economy - and lends to the country's top companies.