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EU Launches Long-Awaited Overhaul of Megabank Regulation

Spellman, J. (2014) “EU Launches Long-Awaited Overhaul of Megabank Regulation“, The European Institute, EI Blog, January.


The European Union’s long-delayed overhaul of megabank regulation now proposes curtailing or banning the riskiest financial activities in hopes of avoiding a repeat of the 2007-2009 global financial system meltdown.

Until now, the post-crisis EU banking reforms had not acted to rein in “too big to fail” banks, focusing instead on establishing a new regulator, the European Banking Authority; stepping up capital provisions to help banks weather economic shocks; launching a mechanism to bail out problem banks; imposing limits on bankers’ compensation as an antidote to the “more pay more problems” phenomenon; and, starting a common deposit guarantee. EU-based banks must also adhere to new global standards, notably Basel III capital requirements [1] These include a “leverage ratio” designed to curb banks’ reliance on debt by setting a minimum standard for how much capital a bank must hold as a percentage of its assets.

Drawing heavily from international responses to the crisis, EU Commissioner Michel Barnier, who oversees financial services, focused on two key elements in announcing the reforms on Wednesday.[2] About 30 banks would be affected, specifically those with total assets for three consecutive years that exceed €30 billion and whose trading book tops €70 billion or 10 per cent of its total assets. Foreign banks’ European subsidiaries, if deemed systemically important in the European Union, would also need to be compliance.


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