* Big banks grow despite financial crisis
* EU reform will not split their business
* France's Noyer attacks "irresponsible" law
By John O'Donnell
BRUSSELS, Jan 29 Europe has unveiled a blueprint
to isolate high-risk trading at big banks in a bid to challenge
their dominance, provoking a hostile response in France amid
fears it could benefit U.S. rivals not covered by the rules.
After the collapse of Lehman Brothers in 2008, world leaders
pledged to tackle banks that were "too big to fail". Yet
throughout the years of financial turmoil, many of Europe's
biggest banks continued to grow.
The European Commission on Wednesday outlined a long-awaited
draft law to change the way those big banks trade, prompting a
backlash from France, whose banking lobby said it would give
U.S.-based rivals in London the upper hand by restricting the
freedom of French banks to trade for clients.
The plan shies away from suggesting any splitting up of big
banks, as originally called for. Michel Barnier, the European
commissioner responsible, has opted instead for a ban on
"proprietary" trading using banks' own funds.
Unveiling the plans, Barnier singled out Deutsche Bank
as typical of "a systemic problem at the European
scale". Its 1.6 trillion euros ($2.2 trillion) of assets - from
loans to derivatives - are equivalent to roughly two-thirds of
the entire German economy.
He insisted, however, that his law did not call into
question the business model of such a bank. "Even if we do
separate out these activities, they can nonetheless be carried
out ... within a single banking group," he told journalists.
In the proposal, he suggests isolating other types of
trading from the "safe", deposit-taking side of banking by
creating subsidiaries within the bank.
But despite shying away from demands to split banks, the law
provoked opposition in France, where it was attacked by the
country's central bank governor as well as its bank lobby.
"I consider the ideas he has proposed irresponsible and
contrary to the interests of the European economy," said
governor Christian Noyer.
Whether such opposition is justified remains to be seen
given the proposals are some years away and may be rewritten in
negotiations between the European Parliament and national
governments. Also U.S. banks will be operating under their own
Germany was more conciliatory. A finance ministry
spokeswoman saw the proposals as generally positive, while
Britain said they were in line with its own reforms.
Elsewhere, many in the European Parliament rounded on the
law as inadequate. Austrian lawmaker Hannes Swoboda described it
as "too little, too late".
Even if agreement is reached between countries and the
European Parliament, which is also in doubt, the rules will
begin only by 2017 at the earliest - roughly a decade after the
start of the banking crisis in Europe and some two years after
similar action in the United States.
Sven Giegold, another influential lawmaker, described the
law as bureaucratic and ineffective. "Rather than saying certain
types of business should be separated, there are loads of
exceptions," he said.
Such critics believe it will do little to address the vast
scale of big banks, blamed for risky trading and growth in the
multi-trillion dollar derivatives market.
Barnier said the proposals had been crafted to avoid any
impact on lending to the "real" economy of businesses and
consumers, a well-worn argument of the banking lobby.
This has become a catch-all reason to reduce regulation,
despite protests from public-interest groups who counter that
most bank activity is now orientated around financial markets
rather than loans.
The draft law draws on advice from a group led by Finnish
central bank governor Erkki Liikanen, who suggested mandatory
separation of a bank's proprietary trading, and other market
betting, into a different legal entity having its own capital to
cushion risks while remaining within the bank.
On this count, the EU draft law is set to go further, and,
like the U.S. Volcker Rule, ban banks from such trading. The
U.S. rule, however, applies to all banks, while in the EU it
applies to the top 30 or so.
Crucially, 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.
Nevertheless, France is resisting interference in the
structure of its big banks, including BNP Paribas,
which Paris sees as national champions critical in financing the
economy. As the law is drafted, Credit Agricole may be
Banks have continued to grow in recent years through
acquisitions, lending and billions of euros of fresh derivatives
deals. In France, BNP Paribas and Credit Agricole's combined
assets grew to near 4 trillion euros in 2012.
Although the picture in the United States is similar, where
the assets of JP Morgan Chase for instance climbed from
more than $1.3 trillion before the crisis in 2006 to $2.4
trillion last year, the U.S. economy is much larger.