EU states cool to Obama proprietary trading ban for big banks -document

By Reuters Staff
February 15, 2010

BRUSSELS, Feb 15 (Reuters) – If U.S. President Barack Obama’s plan to ban proprietary trading at some banks was applied in the European Union, it could be problematic for the bloc’s universal banks, an EU document obtained by Reuters said.

EU finance ministers, following a call from the Netherlands which backs the proposal, will discuss its possible impact on Europe at a meeting on Tuesday but no consensus is expected.

The plan, dubbed the “Volcker rule,” was drafted by White House adviser and former Federal Reserve Chairman Paul Volcker, stunned global markets last month and is already facing resistance in Congress.

EU countries were not consulted and complained that a global approach to rulemaking being spearheaded by the Group of 20 rich and emerging economies was at risk.

Britain, France and Germany have said the approach should not be copied in Europe where many banks combine proprietary trading and commercial banking under one roof.

“Although members support the overarching aim of reducing build-up of risks in the financial system, they also emphasized the importance of a multilateral approach to financial markets regulation to ensure the necessary level playing field,” the document obtained by Reuters said.

It was prepared for finance ministers by a committee of national treasury officials who met earlier this month.

“Members expressed their concerns that the application of the Volcker rule in the EU many not be consistent with the current principles of the internal market and universal banking,” the document added.

The Volcker rule aims to tackle the “too big to fail” issue whereby banks whose failure would destablize markets can assume they will be bailed out if in trouble.

Restricting the scope and size of banks could push risks to other parts of the financial system, the document said.

Obama also put forward proposals to make banks with assets over $50 billion in assets to pay a fee to repay taxpayer money used to shore up the sector. It would apply to eight EU banks from the end of June, if it goes ahead, the document said.

A senior official at the EU’s executive European Commission said on Monday that details of the Volcker rule were too sketchy to form an EU position, but that proprietary trading was only a small part of banking activities in any case.

((Writing by Huw Jones, Editing by Gary Crosse)) ((Reuters Messaging: huw.jones.reuters.com@reuters.net; +44-207-542-3326; huw.jones@thomsonreuters.com))

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