UK pushes Europe for tougher finance rules

 
Tim Wallace
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NEW TREASURY minister Greg Clark last night praised the EU’s tough new banking proposals, and demanded the authorities get even stricter on rogue financiers.

But analysts warned the proposals derived from a report by Finnish central banker Errki Liikanen could drive up banks’ funding costs by splitting retail and investment operations, and push down stocks by hitting mortgage lending.

Clark told a Brussels audience that he was pleased the new plans both went further than the international Basel plans, and followed the UK in ringfencing banks’ retail operations.

“If there is one thing that the European Parliament should champion and complete in its current term, it would be to ensure there is no back-sliding on ensuring genuine structural reform of the European banking sector,” he said.

But he also said the EU was not tough enough on market restructuring, calling on the Parliament to override some countries’ concerns on punishments for market abusers.

“We need far stronger standards of market integrity and a far tougher regime to tackle market abuse,” he said.

“It is deeply troubling that some member states are seeking to water down the Commission’s proposals on market abuse legislation – reducing the sanctions that can be imposed on law-breakers.”

City A.M. understands Clark is pushing for fines of millions of pounds for the worst offenders, or amounting to twice the profit made in the market abuse – a tough punishment which countries including Germany watered down.

Meanwhile analysts warned the new Liikanen rules will damage some of Europe’s largest banks.

“The main impact from ringfencing is negative however, especially for Deutsche Bank in our view – a separate trading entity that would have to be independently capitalised and funded in the wholesale markets necessarily means higher costs,” said Espirito Santo’s Andrew Lim. “It would also lose the implicit cheap funding it derives from being a German-domiciled bank in our view.”

“We believe investors would demand higher interest rates for providing funding to an international investment bank, which derives less implicit bailout insurance from the German state in a stressed market scenario.”