European Commission’s proposal on banking structural reform - a Volcker Rule for Europe

On 29 January 2014, the European Commission published a legislative proposal for a Regulation on structural reforms to the EU banking sector (the “Proposed Regulation”). The Proposed Regulation advances the recommendations set forth in a report published in October 2012 by the EU High-Level Group on reforming the structure of the EU banking sector chaired by the Governor of the Bank of Finland, Erkki Liikanen (the “Liikanen Report”).

In summary, the Proposed Regulation aims at improving the resilience of the EU banking system by requiring banks, in particular banks that are deemed to be “too big to fail”, to implement structural reforms. The key structural reforms proposed include: (i) a ban on speculative activities i.e. proprietary trading; and (ii) a requirement to separate certain trading activities, such as market making, from a deposit taking entity if the trading activities of the bank exceed certain thresholds.

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