Jan 22 (Reuters) - The European Union will not imitate U.S. President Barack Obama’s plan to limit banks’ size and trading activities, because it aims to reduce risk in the sector through other means, an EU source said on Friday.
“Look, we understand the U.S. position and we understand his reasons. But I can’t see the EU going down this route,” the source, who is close to financial policymaking in the EU, told Reuters.
“The U.S. finds itself a little behind us on this. The Obama plan is not fit for the purpose in the EU.”
Obama’s dramatic proposals, announced on Thursday, would prevent banks from investing in, owning or sponsoring a hedge fund or private equity fund, and set a new limit on banks’ size in relation to the financial sector.
They could also bar institutions from proprietary trading operations, which are unrelated to serving customers, for their own profit. [ID:nLDE60L0UV]
But the EU source, who declined to be named, said the 27-nation bloc would instead focus on raising banks’ capital requirements and tightening financial regulation, pursuing initiatives already underway in the European Parliament.
Last year, the EU proposed draft laws expanding official supervision of the financial industry across the bloc, and raising the requirements for capital that banks must set aside to cover risk in their trading books.
“The Obama plan is really back to the future. These sort of plans were implemented after the Great Depression and then taken away in the 60s. He is sort of reinstating the same plans to deal with this crisis,” the source said.
“What is key to remember is that the U.S. is one market, the EU is 27 markets and we are trying to encourage cross-border financial services and more importantly consolidation in both national and trans-national markets. The Obama plan would be anti-competitive in EU terms.”
The source said most top banks in the world were American or had roots there, so it was understandable that Obama wanted to curb their size.
“The EU does not have so many “too big to fail” institutions to be honest. Also, we have already started restructuring of our banks, forcing them to downsize, sell off units and open up to newcomers.
“These plans have only just started to bear fruit, so our position is to continue with this approach and see how things play out.”
Publicly, senior officials in France, Britain and Germany on Friday offered support for Obama’s plan but stopped short of saying they would follow suit.
“He’s developing a solution to what he sees as the American issues, we’ve already taken the necessary action in the UK,” said British Treasury Minister Paul Myners. (Editing by Andrew Torchia)