Liikanen poll: Volcker/Vickers hybrid wrong for Europe’s banks

Author: Gemma Varriale | Published: 18 Sep 2012
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Ahead of a Liikanen review consensus, IFLR questioned market participants as to whether a combined Volcker/Vickers approach was right for Europe’s biggest banks. The response was overwhelming: 75% of those polled disagreed with the plans.

The Liikanen review was established in November 2011 by EU commissioner, Michel Barnier, to conduct a full-scale analysis of Europe’s lending sector and recommend banking reforms for the region. Publication of the Committee’s findings are not expected until next month.

But there is increasing speculation the Review will advocate the introduction of a hybrid model combining the US and the UK approaches to bank reform. The US Volcker approach bans proprietary trading (when a bank trades on its own money). In contrast, the UK’s Vickerswill require major European banks to build a firewall between consumer and investment banks.

According to one respondent in the industry-wide survey, adopting a combined approach would be a backward step, apparently designed to protect voters. “It ignores major and welcome developments in finance and is not dissimilar to the outcry which greeted the first inception of insurance and stock exchanges several centuries ago,” he said.

Another poll participant believed both Volcker and Vickers would be unnecessary, and specified a preference for a proprietary trading ban.

A UK market participant agreed an EU Volcker equivalent made most sense.

It was likely, he said, the French government would introduce a Volcker rule equivalent by the end of the year to stop banks gambling with French citizens’ money.

“There is no way France will allow its banks to be subject to something if no one else in the region is suffering,” said the same respondent.

What’s more, the Volcker limit will only take two years to come into practice, he said. In contrast, Vickers won’t be ready until 2019.

He was puzzled by the UK approach, he said.

“If we get Vickers here, we should have it on continent so that everyone suffers,” he said. “As it stands we could face having both legs broken: one by Vickers and one by an EU Volcker. I don’t understand why regulators didn’t foresee that.”

Some support

A minority of 25% supported the adoption of both Vickers and Volcker. But said the industry was hopeful that the ringfencing mechanism incorporated within this would only be activated in an emergency - for example, if a bank is approaching failure. Respondents said this model could be included in a bank’s so-called living will - the plan to help dismantle a bank during a crisis.

Survey participant also agreed that investment banking would change regardless of what reforms were eventually introduced. “Shareholders want to see more return and don’t want investment banks to see all the goodies,” one respondent said. “They will put political pressure on banks to ringfence regardless of regulations passed.”

A draft directive from the EU is expected in summer 2013.

IFLR will be tracking the systemic and legal backlash of this with interest. Follow us at www.twitter.com/IFLR_online for the latest on developments as they happen.

METHODOLOGY

For the purpose of this poll, IFLR’s team of journalists surveyed private practice lawyers and in-house counsel at the biggest law firms and investment banks in Europe, the UK and US.

After collating the responses, journalists conducted interviews with counsel at a selection of law firms and banks. Their comments have informed IFLR's analysis.

It is the policy of IFLR to guarantee counsel and institutions participating in our surveys complete anonymity. IFLR will not disclose the law firms or banks that replied to questionnaires or agreed to interviews.

See also

http://www.iflr.com/Article/3090581/Why-small-banks-need-Volcker-rule-amendments.html

http://www.iflr.com/Article/3051206/UK-Treasury-White-Paper-where-the-government-went-wrong.html

http://www.iflr.com/Article/2974940/FSA-official-ring-fencing-is-step-ahead-of-global-standards.html

http://www.iflr.com/Article/3020069/Latest-insight-on-final-Volcker-Rule.html

http://www.iflr.com/Article/3018993/What-banks-must-do-during-Volcker-conformance-period.html