EU’s too-big-to-fail plan seen as too late to win approval

Michel Barnier, the European Union’s financial services chief, faces opposition to his plans to curb the activities of about 30 of the bloc’s largest banks to prevent them being too big to fail.

While France and Germany say parts of today’s proposals may hamper lending and threaten an exodus of banking services, European Parliament lawmakers argue the plans have simply come too late for them to review and approve ahead of May elections. Many will have left office or switched jobs by the time the assembly gets a chance to vote on the measures.

“It’s a bit insulting to present this now,” Sharon Bowles, chairwoman of the EU assembly’s economic and monetary affairs committee, said in an e-mail. “Barnier should have presented this much sooner before the election, or not at all. The deadline for the parliament to receive new, non-emergency, proposals before the elections expired in July last year.”

Barnier’s initiative, which would ban the lenders from proprietary trading and hand regulators the power to split them up, are seen as a “cornerstone” of the EU’s fight against too- big-to-fail lenders that has dominated his five-year tenure. Barnier, whose term ends on Oct. 31, has argued for EU-level regulation responding to a flurry of national measures in the 28-nation bloc and the U.S., where regulators last year approved a proprietary trading ban, the Volcker Rule.

Regulatory Overhaul

“Today’s proposals are the final cogs in the wheel to complete the regulatory overhaul of the European banking system,” Barnier said in an e-mailed statement. The plans are “necessary to ensure that divergent national solutions do not create fault lines,” he said.

The bank-structure rules are part of a package of Barnier measures announced today that also include a draft law targeted at so-called shadow banking.

In the EU, the final version of financial regulations must be negotiated and jointly approved by the parliament and by the Council of the European Union, the EU institution that represents national governments, to take effect. They are free to amend Barnier’s original blueprint.

The Frenchman’s successor in the new European Commission will also have the option to withdraw the plans, or submit amended versions.

The commission will “face challenges getting these proposals through the European Parliament and Council in their current form, given how contentious these issues have proved,” Clifford Smout, co-head of the Deloitte Centre for Regulatory Strategy, said in an e-mail.

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