How Will Euro Banks Be Restructured?


The ECB may not fully reject the Liikanen group’s proposals, but it does seem more interested in alternative proposals from the European Commission. The ECB seems interested in keeping market-making activities allowed within deposit-taking arms, which Liikanen’s proposals wouldn’t allow.

The European Commission’s own proposals would allow market-making to continue in banks’ deposit-taking arms and wouldn’t force banks to issue a debt that could be written down or converted to equity if the lender was struggling. Instead, focus is on regulators having more “bail-in” powers at insolvent banks, which would impose losses on bondholders at those banks. Though the European Commission’s proposals have received more favor from the ECB, the ECB still wants the plans to be further analyzed and evaluated.

The Liikanen group’s proposals would break up some of Europe’s biggest banks in order to protect taxpayers from banking troubles, but could fail to do so if the bank is “too systemic, large, and interconnected,” according to the ECB. The European Commission’s proposal provides “legal certainty and incentives for investors to better monitor banks and reduces implicit government subsidy for the too-big-to-fail entities,” according to the ECB.

More news will come later on this topic when the Liikanen group announces its evaluations, and when the European Commissions makes its decision on how to proceed with the banking reforms.

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