The Liikanen Report

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The Liikanen Report

2 AGGREGATE EU BANK SECTOR DEVELOPMENTS ...................................................................................... 3

2.1 INTRODUCTION .......................................................................................................................................... 4

2.2 CRISIS NARRATIVE ....................................................................................................................................... 4

2.3 LOOKING BACKWARD: EU BANK SECTOR DEVELOPMENTS LEADING UP TO THE CRISIS .............................................. 11

2.4 IMPACT OF THE FINANCIAL CRISIS ................................................................................................................. 19

2.5 DEVELOPMENTS SINCE THE FINANCIAL CRISIS .................................................................................................. 25

3 DIVERSITY OF BANK BUSINESS MODELS IN EUROPE............................................................................... 32

3.1 INTRODUCTION ........................................................................................................................................ 32

3.2 GENERAL FINDINGS ON THE PERFORMANCE AND RISKS OF DIFFERENT BANK BUSINESS MODELS ................................. 33

3.3 LARGE VERSUS SMALL BANKS ....................................................................................................................... 34

3.4 LARGE AND SYSTEMICALLY IMPORTANT EU BANKS ........................................................................................... 38

3.5 DIVERSITY IN EU BANKING: PUBLICLY INFLUENCED BANKING MODELS, AND COOPERATIVE AND SAVINGS BANKS .......... 56

3.6 CASE STUDIES: ILLUSTRATION OF BUSINESS MODELS THAT FAILED IN THE CRISIS ..................................................... 58

4 EXISTING AND FORTHCOMING REGULATORY REFORMS ........................................................................ 67

4.1 INTRODUCTION ........................................................................................................................................ 67

4.2 AGREED AND PROPOSED REFORMS ............................................................................................................... 68

4.3 STRUCTURAL REFORMS .............................................................................................................................. 83

5 FURTHER REFORMS OF THE EU BANKING SECTOR ................................................................................. 88

5.1 THE ROLE OF BANKS IN FINANCING THE REAL ECONOMY .................................................................................... 88

5.2 THE PROBLEMS IN THE EU BANKING SECTOR .................................................................................................. 88

5.3 EVALUATING THE CURRENT REGULATORY REFORM AGENDA ............................................................................... 91

5.4 DETERMINING THE NATURE OF FURTHER REFORMS .......................................................................................... 94

5.5 THE PROPOSAL ......................................................................................................................................... 99

5.6 THE EUROPEAN INSTITUTIONAL ARCHITECTURE ............................................................................................. 107

5.7 COMPETITION ........................................................................................................................................ 108

5.8 COMPETITIVENESS .................................................................................................................................. 108

 

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5.4.1 Avenue 1: a non-risk weighted capital buffer for trading activities and contingent functional

separation of significant trading activities

This avenue is composed of two main elements:

First, a non-risk weighted capital requirement on trading activities in addition to the Basel

risk-weighted requirements, for banks with significant trading activity. The non-risk weighted

capital buffer would be based on the amount of trading activities (e.g. measured in relation

to trading assets).

Second, separation of banking activities subject to a supervisory evaluation of the credibility

of the recovery and resolution plans based on a clear set of common EU-wide criteria. In

order to reduce market uncertainty over the impact of the reform, a timeline could be set

according to which banks and supervisors would have to conclude the assessment of the

recovery and resolution plans and take decisions regarding possible structural requirements.

5.4.1.1 Additional non-risk weighted capital buffer for trading activities

All banks with significant trading activity in excess of a certain threshold would be required to hold an

additional non-risk-weighted capital buffer on top of the existing Basel 2.5 and 3 requirements (as a

part of the Pillar 1 capital requirements), in order to reduce their probability of failure due to major

trading losses; to limit their incentives to develop excessive trading activity; and to cap the increased

loss absorbency in case of failure.

In order to avoid overlap with ongoing regulatory initiatives, when calibrating the size of the

additional buffer, account should be taken of the ongoing trading book review by the Basel

Committee on Banking Supervision (BCBS).

The size of the additional capital buffer could increase in proportion to the level of deposit funding.

The additional capital buffer for trading activities is motivated by the existence of market (especially

tail risks) and operational risks arising from complex market activities. These may not be covered

fully by the model-based capital requirements, and – in case of major institutions – the systemic risks

arising from major trading operations. Analysis shows that all of these risks are currently increasing in

the volume of trading activities. The extra capital requirement would have to be maintained even if

trading activity is organized in a legally-separate entity in order to ensure these risks remain covered

and to mitigate regulatory arbitrage.

The requirement that the additional capital buffer would increase in proportion to the level of

deposit funding is motivated by the related risks associated with retail banking activities and

depositors arising from diversified business models which combine retail banking with trading

activities. The extra requirement would mitigate the moral hazard problem stemming from the

explicit and implicit public protection of depositors and the non-risk sensitive pricing of deposits. It

would also create incentives not to use insured deposits to fund trading assets.

The requirement could be covered by common equity Tier 1 own funds. The additional capital buffer

would come on top of the risk-based Basel requirements, not as a “floor” for model outcomes, as the

Basel leverage ratio requirement.

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Der Report enthält übrigens detailierte Informationen über die Ursachen der Bankenkrise, über die geplanten Maßnahmen von Basel III und deren Auswirkungen.