European banks will be forced to split out risky business such as proprietary trading under proposals set out in a report on how to make the region’s lenders safer.
The report produced by a European Union advisory group, chaired by Bank of Finland Governor Erkki Liikanen, recommends a series of changes to the way banks are structured and funded to make it easier for them to be wound down if they get into trouble.
Under the proposals, proprietary trading, which involves banks attempting to profit from trading using their own shareholders’ funds, will in future have to be placed within a separate legal vehicle to ensure that it poses no risk to a lender’s deposit-taking business.
Could be a sensible idea, might not be.
But it would have made absolutely no damn difference at all back in 2007/8.
For the banks which did fall over did not do so as a result of proprietary trading. Rather, they\’d simply lent too much money to people who couldn\’t pay it back. In the UK, Germany, Spain, Ireland, it was a failure of plain old vanilla banking, getting the underwriting wrong. Not market trading at all.