The European Union’s executive arm, the European Commission, made a lot of bank executives very happy this Tuesday by abandoning its multi-year pledge to break-up too-big-to-fail lenders. Despite the huge risk they still pose to Europe’s rickety financial system, big European banks like Deutsche Bank, BNP Paribas, ING, and Santander can breathe a large sigh of relief this week in the knowledge that they will not have to split their retail units from their riskier investment banking arms.
Breaking up the banks would remove much of the risk from today’s government-backed banks, such as derivatives and other instruments that were heavily involved in the Financial Crisis. Without these hedge-fund and investment-banking activities, even large banks would be smaller, less interconnected, and could be allowed to fail without jeopardizing the entire global financial system.
According to the Commission, such a drastic measure is no longer necessary since the main rationale behind ring-fencing core banking services from investment banking divisions – i.e. to make Europe’s financial system less disaster prone – has ‘already been addressed by other regulatory measures in the banking sector.’ That’s right: Europe’s banking system is already safe, stable and secure. Bloomberg:
This post was published at Wolf Street on Oct 25, 2017.