Liikanen rejects Volcker claims that ring fence will not work

Tim Wallace
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EU BANK regulator Erkki Liikanen yesterday defended his ring fencing plans against claims that such a structure is impractical, telling a committee of MPs and peers that the universal banking model has served Europe well in the past, when run in a prudent way.

US regulator Paul Volcker last week told the Parliamentary Commission on Banking Standards that ring fences can be “permeable over time” as staff move between the retail and investment arms.

But Liikanen hit back, arguing that his plans for European banks should make them as safe as the two entities Volcker favours.

“If we decide the guaranteed deposits cannot be used for proprietary trading and market making, and they must be properly capitalised – I think we have reasonable separation.”

But he admitted the governance aspects of his reforms had not yet been thought through, and could not explain how the group board could influence an independent investment banking board.