Key legislation on the structural reform of banks held over from the previous European Parliament and European Commission may now take a back seat.
What’s happening?
The European Parliament has reconvened after elections in May, and the Economic and Monetary Affairs Committee (ECON) responsible for financial regulation has been chosen, with a chair and vice-chairs elected by its members. Legislation on financial benchmarks and money-market funds was considered by the previous European Parliament but not passed. Legislation to reform the structure of banks and restrict their proprietary trading was proposed by Michel Barnier, the then European commissioner for the internal market and services, in January 2014, but not considered by European Parliament.
What’s next?
Pablo Zalba Bidegain, a former ECON vice-chair and Spanish member of the European Parliament (MEP) for the European People’s Party, which is the largest grouping, expects continued momentum for financial regulatory reform efforts. He believes that discussions on financial benchmarks and money-market funds can proceed quickly.
“These measures will definitely be on the agenda of the Italian presidency [the rotating presidency of the EU Council], because they are priorities set by the G20. I am hopeful that the obstacles can be resolved,” says Mr Zalba.
On bank structural reform, Mr Barnier’s successor will need to decide whether to ask the European Parliament to begin considering the proposal as it is, or if the European Commission should overhaul the plan first.
“Mr Barnier was the main driving force behind the structural reform proposal. Several countries, including France and Germany, have passed their own legislation on proprietary trading, and the UK has the Banking Reform Act that ring-fences retail banking. It seems the European Council legal service is unhappy with derogations to make the Barnier draft compatible with the UK Act, so this legislation could be deprioritised,” says Kay Swinburne, a UK Conservative MEP and member of the European Conservatives and Reformists (ECR) grouping.
What do reformists say?
Even those on the left who were the strongest advocates of financial regulation are turning their attention to another priority: reviving growth in the EU. The new ECON chair, Italian socialist Roberto Gualtieri, is likely to place this high on his agenda. In this context, Sven Giegold, an MEP from the Green grouping in ECON that introduced the bankers’ bonus cap in the previous parliament, is sceptical about the Barnier proposals as framed.
“We need a simple set of rules that will apply to all banks, not a very complex set of rules where regulators have to identify and enact separation of over-complex banks on a case-by-case basis. Interventions about how to manage individual banks do not correspond to a social market economy. We must carry out structural reforms seriously if they are going to make sense,” says Mr Giegold.
Relief for the City?
If the bank structural reform proposals fail to win support on either side of the political spectrum, banks in the UK may breathe a sigh of relief, as the risk of EU rules that supersede the Banking Reform Act will recede. But there are concerns about dwindling UK influence over financial regulation emanating from European institutions.
Sharon Bowles, former UK Liberal Democrat MEP and chair of ECON, stood down at the elections, as did two Labour veterans, Peter Skinner and former ECON vice-chair Arlene McCarthy. The ECR to which the UK Conservatives belong has gained ground, to become the third largest grouping. This enabled it to win a vice-chair’s position on ECON. But the proportion of UK MEPs in the group has also dwindled, so that the two UK Conservative ECON members in the previous parliament have been reduced to one full member, and one substitute.
Moreover, the British Bankers’ Association (BBA) sounded a warning in July 2014 that British influence in the European Commission is also declining. The proportion of UK nationals in the European Commission has fallen from 9.6% a decade ago to 5.3% today, and is just 3.5% in the internal market and services directorate responsible for bank structural reform. Only 2.6% of those passing the entrance exam for the European Commission in the past three years were from the UK.
“When it comes to staff numbers working in Brussels, the UK massively punches below its weight, particularly in the most important parts of the commission. The UK has less than half the staff it should for its size of population and even far smaller EU nations are better represented. This means there are fewer people with a strong understanding of UK issues in the corridors of power in Brussels, and so a greater likelihood that our national interests are not taken properly into account,” says BBA chief executive Anthony Browne.
