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==Formation and objectives==
==Formation and objectives==
The '''Liikanen Group''' was molded after the UK’s [[Independent Commission on Banking]]: EU Commissioner [[Michel Barnier]] assembled the group in February 2012 to consider structural reforms to the EU banking sector to promote financial stability and efficiency, in the context of the [[European sovereign-debt crisis]] and [[great recession]]. The Liikanen Report could serve as the starting point for new [[EU directive]]s aiming at reforming the banking sector across member states.
The '''Liikanen Group''' was molded after the UK’s [[Independent Commission on Banking]]: EU Internal Markets Commissioner [[Michel Barnier]] set up the group in November 2011 to consider structural reforms to the EU banking sector, to promote financial stability and efficiency, in the context of the [[European sovereign-debt crisis]] and [[great recession]]. The Liikanen Report is intended to serve as the starting point for new [[EU directive]]s to reform the EU banking sector.


==The “Liikanen Group”==
==The “Liikanen Group”==
According to the EU Commission, members of the [[ad hoc]] “Liikanen Group” <ref>http://ec.europa.eu/internal_market/bank/docs/high-level_expert_group/members_en.pdf</ref>were appointed solely on the basis of their technical expertise and professional merit. <ref name="Financial News ">{{Cite news|first=David |last=Thomas|title= “Meet Michel Barnier’s regulation team”|http://www.efinancialnews.com/story/2012-02-23/meet-michel-barniers-regulatory-team | work=[[Financial News]] |date= Feb 23, 2012 |accessdate= 28 Aug 2012 |language=English}}..</ref>
According to the EU Commission, members of the [[ad hoc]] “Liikanen Group” were appointed solely on the basis of their technical expertise and professional merit. </ref><ref name="Financial News ">{{Cite news|first=David |last=Thomas|title= “Meet Michel Barnier’s regulation team”|http://www.efinancialnews.com/story/2012-02-23/meet-michel-barniers-regulatory-team | work=[[Financial News]] |date= Feb 23, 2012 |accessdate= 28 Aug 2012 |language=English}}..</ref>
The 11 member group was composed of<ref>http://ec.europa.eu/internal_market/bank/docs/high-level_expert_group/members_en.pdf</ref>:
The 11 member group held monthly meetings, invited different stakeholders, and organized a public consultation in May 2012. It was composed of <ref>http://ec.europa.eu/internal_market/bank/docs/high-level_expert_group/members_en.pdf</ref>:


[[Erkki Liikanen]], chairman, Governor of the [[Bank of Finland]] and member of the [[European Central Bank|ECB]] Governing Council (2004-present)
[[Erkki Liikanen]], chairman, Governor of the [[Bank of Finland]] and member of the [[European Central Bank|ECB]] Governing Council (2004-present).


[[Hugo Bänziger]], visiting professor at the [[London School of Economics]] and the Lee Kwan Yew Institute for Public Policy and a member of the board of [[Eurex]]. Mr. Bänziger is a [[Swiss]] national and former board member and chief risk officer of [[Deutsche Bank]](2006-5/2012). He previously worked for Deutsche Morgan Grenfell and [[Credit Suisse]] after starting his career at the [[Swiss Federal Banking Commission]].
Hugo Bänziger <ref>http://de.wikipedia.org/wiki/Hugo_B%C3%A4nziger</ref>, visiting professor at the [[London School of Economics]] and the Lee Kwan Yew Institute for Public Policy and a member of the board of [[Eurex]],[[Swiss]]economist and bank manager, former board member and chief risk officer of [[Deutsche Bank]](2006-5/2012). He previously worked for global investment banks[[Morgan Grenfell]] and [[Credit Suisse]] after starting his career at the [[Swiss Federal Banking Commission]].


[[José Manuel Campa]], an alumnus of [[Harvard University]], professor of financial management at [[IESE]] Business School at the [[University of Navarra]], former State Secretary at the Ministry of Economy and Finance, Spain (2009-12/2011)<ref>http://www.bruegel.org/about/person/view/205-jose-manuel-campa/</ref>
José Manuel Campa<ref>http://es.wikipedia.org/wiki/Jos%C3%A9_Manuel_Campa</ref>, an alumnus of [[Harvard University]], professor of financial management at [[IESE]] Business School at the [[University of Navarra]], former State Secretary at the Ministry of Economy and Finance, Spain (2009-12/2011)<ref>http://www.bruegel.org/about/person/view/205-jose-manuel-campa/</ref>


[[Louis Gallois]], an alumnus of the [[HEC Paris]] School of Management, former chief executive of [[EADS]], a Franco-German defense and aviation group, as well as SNCF, Aerospatiale and SNECMA, former senior member of the French Ministry of Economy and Finance, the French Ministry of Research and Industry and the French Ministry of Defense.
[[Louis Gallois]], an alumnus of the [[HEC Paris]] School of Management, former chief executive of [[EADS]], a Franco-German defense and aviation group, as well as [[SNCF]],France's national state-owned railway company, [[Aerospatiale]] and [[SNECMA]]a French multinational aircraft and rocket engine manufacturer, former senior member of the French Ministry of Economy and Finance, the French Ministry of Research and Industry and the French Ministry of Defense.


Monique Goyens, director general of [[BEUC]] (2007-present), the EU consumers' rights organization representing 42 independent
Monique Goyens, director general of [[BEUC]] (2007-present), the EU consumers' rights organization representing 42 independent
national consumer associations in 31 European countries acting as a consumer voice in Brussels, Belgium.<ref>http://ec.europa.eu/environment/resource_efficiency/re_platform/about/members/monique_goyens/index_en.htm</ref>
national consumer associations in 31 European countries acting as a consumer voice in Brussels, Belgium.<ref>http://ec.europa.eu/environment/resource_efficiency/re_platform/about/members/monique_goyens/index_en.htm</ref>


Jan Pieter Krahnen, chair of the [[corporate finance]] department at [[Goethe University]] in Frankfurt/Main, Germany (1995-present), Director of the [[Center for Financial Studies]], a non-profit research institution in Frankfurt and a [[Center for Economic and Policy Research]](CEPR)research fellow in Financial Economics.
Jan Pieter Krahnen, chair of the [[corporate finance]] department at [[Goethe University]] in Frankfurt/Main, Germany (1995-present), Director of the [[Center for Financial Studies]], a non-profit research institution in Frankfurt/Main and a [[Center for Economic and Policy Research]](CEPR)research fellow in Financial Economics.


Marco Mazzucchelli, an alumnus of [[Bocconi University]], visiting scholar at the [[MIT Sloan School of Management]] has has a career in investment banking, former managing director of the Global Banking and Markets division of the [[Royal Bank of Scotland]], Head of the region Europe, the Middle East and Africa (EMEA), positions at [[Credit Suisse]], Monte dei Paschi di Siena, Sanpaolo IMI and [[Morgan Stanley]] among others.
Marco Mazzucchelli, alumnus of [[Bocconi University]], visiting scholar at the [[MIT Sloan School of Management]] has has a career in investment banking, former managing director of the Global Banking and Markets division of the [[Royal Bank of Scotland]], Head of the region Europe, the Middle East and Africa (EMEA), positions at [[Credit Suisse]], Monte dei Paschi di Siena, Sanpaolo IMI and [[Morgan Stanley]] among others.


Carol Sergeant, chairwoman of the [[UK Treasury]] steering group charged with devising so called ‘simple’[[financial product]]s that can easily be understood by retail consumers and forming financial markets experts at the [[Bank of England]], non-executive director of Secure Trust Bank<ref>http://www.securetrustbank.com/</ref>, chairman of the whistle blowing charity 'Public Concern at Work'<ref>www.pcaw.org.uk</ref> and special advisor to bank chief executives and chairmen. She was Chief Risk Officer of [[Lloyds Banking Group]] (2004-2010), Managing Director on the Board of the UK [[Financial Services Authority]] in charge of the regulatory process and risks directorate( ?-2004) after starting her career at the [[Bank of England]].
Carol Sergeant, chairwoman of the [[UK Treasury]] steering group charged with devising so called ‘simple’[[financial product]]s that can easily be understood by retail consumers and forming financial markets experts at the [[Bank of England]], non-executive director of Secure Trust Bank<ref>http://www.securetrustbank.com/</ref>, chairman of the whistle blowing charity 'Public Concern at Work'<ref>www.pcaw.org.uk</ref> and special advisor to bank chief executives and chairmen. She was Chief Risk Officer of [[Lloyds Banking Group]] (2004-2010), Managing Director on the Board of the UK [[Financial Services Authority]] in charge of the regulatory process and risks directorate( ?-2004) after starting her career at the [[Bank of England]].
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[[Zdenek Tuma]], director at [[KPMG]], a global audit,tax and advisory company and former governor of the [[Czech National Bank]](2000-2010), after various posts in academia and the private sector.
[[Zdenek Tuma]], director at [[KPMG]], a global audit,tax and advisory company and former governor of the [[Czech National Bank]](2000-2010), after various posts in academia and the private sector.


Jan Vanhevel, former Chief Executive Officer (7/2009-5/2012)of the KBC Group,a Belgian banking and insurance group, where he advocated for social responsibility<ref>KBC's CSR report of 2011 http://www.kbc-csr.com/a-word-from-our-ceo/</ref>.
Jan Vanhevel, former Chief Executive Officer (7/2009-5/2012)of the [[KBC]] Group,a Belgian banking and insurance group, where he advocated for social responsibility <ref>KBC's CSR report of 2011 http://www.kbc-csr.com/a-word-from-our-ceo/</ref>.


[[Herman Wijffels]], economist, part-time professor in Sustainability and Societal Change at [[Utrecht University]](2009-present), former executive board member of [[Rabobank]](1981-1999, chair 1986), Chairman of the Dutch [[Social Economic Council]] (Sociaal-Economische Raad, SER, 1999-2006) `informateur’, coordinating the negotiations between the political parties for the cabinet-to-be in 2007 and former Dutch representative of the [[World Bank]](2006-2009).<ref>http://www.circleeconomy.com/people/circle-consciousness/herman-wijffels/</ref>
[[Herman Wijffels]], economist, part-time professor in Sustainability and Societal Change at [[Utrecht University]](2009-present), former executive board member of [[Rabobank]](1981-1999, chair 1986), Chairman of the Dutch [[Social Economic Council]] (Sociaal-Economische Raad, SER, 1999-2006) `informateur’, coordinating the negotiations between the political parties for the cabinet-to-be in 2007 and former Dutch representative of the [[World Bank]](2006-2009).<ref>http://www.circleeconomy.com/people/circle-consciousness/herman-wijffels/</ref>


==Filling the regulatory gap==
==Filling the regulatory gap==
European scholars have long discussed the necessity of an EU-wide banking law in light of the [[European sovereign-debt crisis]], recommending the adoption of structural reforms- notably in France where [[SFAF]] and [[:fr: Forum Mondial des Fonds de Pension|World Pensions Council (WPC)]] banking experts have argued that, beyond fragmented national [[legislation]]s, such [[statutory]] rules should be adopted and implemented within the broader context of [[separation of powers]] in [[European Union law]].<ref>{{Cite journal |url=http://www.canadianeuropean.com/yahoo_site_admin/assets/docs/Bank_Regulation_and_Financial_Orthodoxy__RAF__Jan_2010.784613.pdf |accessdate=14 July 2012 |first=M Nicolas |last=Firzli |date=January 2010| title=Bank Regulation and Financial Orthodoxy: the Lessons from the Glass-Steagall Act |language=French |pages=49–52 |journal=Revue Analyse Financière |issue=34}}</ref> <ref name="Le Parisien ">{{Cite news | first= Marie |last=Lepesant|title= Le Modèle des Banques Françaises en Question|url= http://www.leparisien.fr/milibris/liseuse/LeParisien/?type=le-parisien-economie&date=20120611| work=[[Le Parisien]] |date= June 11, 2012 |accessdate= 12 June 2012 |language=French}} - Quoting M. Nicolas Firzli of the [[:fr: Forum Mondial des Fonds de Pension|World Pensions Council (WPC)]].</ref>
European scholars have long discussed the need for an EU-wide banking law in light of the [[European sovereign-debt crisis]], recommending the adoption of structural reforms, notably in France where [[SFAF]] and [[:fr: Forum Mondial des Fonds de Pension|World Pensions Council (WPC)]] banking experts have argued that, beyond fragmented national [[legislation]]s, such [[statutory]] rules should be adopted and implemented within the broader context of [[separation of powers]] in [[European Union law]].<ref>{{Cite journal |url=http://www.canadianeuropean.com/yahoo_site_admin/assets/docs/Bank_Regulation_and_Financial_Orthodoxy__RAF__Jan_2010.784613.pdf |accessdate=14 July 2012 |first=M Nicolas |last=Firzli |date=January 2010| title=Bank Regulation and Financial Orthodoxy: the Lessons from the Glass-Steagall Act |language=French |pages=49–52 |journal=Revue Analyse Financière |issue=34}}</ref> <ref name="Le Parisien ">{{Cite news | first= Marie |last=Lepesant|title= Le Modèle des Banques Françaises en Question|url= http://www.leparisien.fr/milibris/liseuse/LeParisien/?type=le-parisien-economie&date=20120611| work=[[Le Parisien]] |date= June 11, 2012 |accessdate= 12 June 2012 |language=French}} - Quoting M. Nicolas Firzli of the [[:fr: Forum Mondial des Fonds de Pension|World Pensions Council (WPC)]].</ref>


This perspective gained ground after the [[Libor scandal]] broke news in June 2012, with mainstream opinion leaders such as [[Financial Times]] editorialists in the [[UK]] and the Centre des Jeunes Dirigeants (CJD),a Business Federation in [[France]] calling for the adoption of an EU-wide "Glass Steagall II" <ref name="FT ">{{Cite news | first= Page |last= Editorial|title= Restoring trust after Diamond|url= http://www.ft.com/intl/cms/s/0/498248bc-c518-11e1-b8fd-00144feabdc0.html#axzz20iPBjEvM| work=[[Financial Times]] |date= July 3, 2012 |accessdate= 15 July 2012 |language=English}} quoting FT Editorial Page.</ref> <ref name="CJD ">{{Cite news | first= CJD |last=|title= Objectif Oïkos: 12 Propositions pour 2012|url= http://www.calameo.com/read/000947174318c527fe7e6| work= Propositions du CJD |date= November 2011/June 2012 |accessdate= 12 June 2012 |language=French}} p. 98.</ref>. Likewise, former Citigroup Chairman and CEO [[Sandy Weill]], considered one of the driving forces behind the financial [[deregulation]] and “mega-[[merger]]s” of the 1990s, surprised [[financial analyst]]s in Europe and North American July 25 2012, by “calling for splitting up the [[commercial bank]]s from the [[investment bank]]s. In effect, he says: bring back the Glass-Steagall Act of 1933 which led to half a century, free of financial crises.” <ref name="Forbes ">{{Cite news|first=Steve |last=Denning|title= Rethinking Capitalism: Sandy Weill Says Bring Back Glass-Steagall|http://www.forbes.com/sites/stevedenning/2012/07/25/rethinking-capitalism-sandy-weill-says-bring-back-glass-steagall| work=[[Forbes]] |date= July 25, 2012 |accessdate= 25 July 2012 |language=English}} Quoting interview on CNBC’s Squawk-Box.</ref>
This perspective gained ground after the [[Libor scandal]] broke news in June 2012, with mainstream opinion leaders such as [[Financial Times]] editorial writers in the [[UK]] and the Centre des Jeunes Dirigeants (CJD),a Business Federation in [[France]] calling as in 2008, for adoption of an EU-wide "Glass Steagall II" <ref name="FT ">{{Cite news | first= Page |last= Editorial|title= Restoring trust after Diamond|url= http://www.ft.com/intl/cms/s/0/498248bc-c518-11e1-b8fd-00144feabdc0.html#axzz20iPBjEvM| work=[[Financial Times]] |date= July 3, 2012 |accessdate= 15 July 2012 |language=English}} quoting FT Editorial Page.</ref> <ref name="CJD ">{{Cite news | first= CJD |last=|title= Objectif Oïkos: 12 Propositions pour 2012|url= http://www.calameo.com/read/000947174318c527fe7e6| work= Propositions du CJD |date= November 2011/June 2012 |accessdate= 12 June 2012 |language=French}} p. 98.</ref>. Likewise, former Citigroup Chairman and CEO [[Sandy Weill]], considered one of the driving forces behind the financial [[deregulation]] and “mega-[[merger]]s” of the 1990s, surprised [[financial analyst]]s in Europe and North American July 25 2012, by “calling for splitting up the [[commercial bank]]s from the [[investment bank]]s. In effect, he says: bring back the Glass-Steagall Act of 1933 which led to half a century, free of financial crises.” <ref name="Forbes ">{{Cite news|first=Steve |last=Denning|title= Rethinking Capitalism: Sandy Weill Says Bring Back Glass-Steagall|http://www.forbes.com/sites/stevedenning/2012/07/25/rethinking-capitalism-sandy-weill-says-bring-back-glass-steagall| work=[[Forbes]] |date= July 25, 2012 |accessdate= 25 July 2012 |language=English}} Quoting interview on CNBC’s Squawk-Box.</ref>


==Final report ==
==Final report==
The [http://www.ec.europa.eu/internal_market/bank/docs/high-level_expert_group/report_en.pdf final version of the report] was published on Tuesday October 2, 2012.
The 153 page [http://www.ec.europa.eu/internal_market/bank/docs/high-level_expert_group/report_en.pdf final version of the report] was published on Tuesday October 2, 2012. The recommended [[regulatory]] [[disposition]]s combine key features of the [[Dodd–Frank Wall Street Reform and Consumer Protection Act]] and, more pronouncedly, the [[UK]]’s [[Independent Commission on Banking]], the "Vickers report" from 2011.
The report recommended actions in the following 5 areas:


1) Mandatory separation of proprietary trading and other high-risk trading;
⚫
The recommended [[regulatory]] [[disposition]]s combine key features of the [[Dodd–Frank Wall Street Reform and Consumer Protection Act]] and, more pronouncedly, the [[UK]]’s [[Independent Commission on Banking]], strict compartmentalization or “ring-fencing” of [[proprietary trading|proprietary]] and third-party trading activities. This is both in terms of [[risk management]] and [[capital (economics)|capital]] [[allocation of resources|allocation]]: “''the trading division will have to hold its own capital, meaning that it stands or falls by its own activities and cannot, in theory at least, knock over the bread-and-butter [[retail banking]] operations. The idea is to get taxpayers off the hook by ensuring that governments do not have to step in to safeguard deposits if traders blow a hole in their balance sheet''”. <ref>{{Cite journal |url=http://www.ft.com/intl/cms/s/0/0ff0b3a4-0c8a-11e2-a73c-00144feabdc0.html#axzz29DzRm9O6 |accessdate=13 October 2012 |first=Tom |last=Burgis |date=Oct. 2nd 2012 | title= The Liikanen report decoded |pages=n.a. |journal=[[Financial Times]] |issue=}}</ref>


2) Additional separation of activities, conditional on the recovery and resolution plan (RRP)<ref>Definition: sometimes known as "living wills" of an institution. Recovery plans, which come into play when a firm falls under extreme stress, outline actions to maintain the firm as a going concern. Resolution plans would be resorted to in the event of failure of a financial institution and aim to manage its resolution in a controlled manner with minimum cost and systemic disruption.</ref>;
The '''Liikanen Report'''advocates for a better alignment of [[executive pay]] with [[long term]] corporate and [[national interest]]s, by raising the [[fixed income]] or “debt” component of bankers’ bonuses, “''meaning they could be decreased if short-term profits yield long-term troubles.''”


3) Amendments to the use of bail-in instruments as a resolution tool;
⚫
==References==


4) Toughening of capital requirements on trading assets and real estate related loans (ie mortgages), aka [[fractional banking ]];

5) Strengthening the governance and control of banks – including measures to rein in or bail-in bonuses.

The report gives a good overview of the structure and evolution of the EU banking sector with its tradition of [[universal bank]]ing, and assesses banking reforms in the post-European debt crisis era. It provides a range of proposals to remedy deficits in bank reforms, such as improving of already existing regulations in risk management under the [[Basel III]] rules, corporate governance, bank resolution mechanisms, management and strengthening of supervision and compensation rules for bank staff. It advocates for a better alignment of [[executive pay]] with [[long term]] corporate and [[national interest]]s, by raising the [[fixed income]] or “debt” component of bankers’ bonuses, meaning the bonuses could be decreased if short-term profits yield long-term troubles, paying bonuses with bonds. The Swiss bank UBS adopted the latter so called "bail-in bonds". 2/5/13. <ref>http://edition.cnn.com/2013/02/06/business/ubs-new-bonus-clawback-rule</ref>

Re 1) Mandatory separation of high-risk trading activities i.e. compartmentalization, or “ring-fencing” of [[proprietary trading|proprietary]] and third-party trading activities, without breaking banks up is to include [[risk management]] and [[capital (economics)|capital]] [[allocation of resources|allocation]]: “''the trading division will have to hold its own capital, meaning that it stands or falls by its own activities and cannot, in theory at least, knock over the bread-and-butter [[retail banking]] operations.''" Universal banks with very large trading arms either in absolute terms (over €100bn-£80bn-$130bn-¥10.2tr-Y821bn) or in proportion to the rest of the bank (greater than 15%-25%) should be forced to hold separate capital for its trading operations.

⚫
Re 2)-5) Mechanisms to allow a bank to enter bankruptcy instead of the public having to rescue it: "The idea is to get taxpayers off the hook by ensuring that governments do not have to step in to safeguard deposits if traders blow a hole in their balance sheet''”. <ref>{{Cite journal |url=http://www.ft.com/intl/cms/s/0/0ff0b3a4-0c8a-11e2-a73c-00144feabdc0.html#axzz29DzRm9O6 |accessdate=13 October 2012 |first=Tom |last=Burgis |date=Oct. 2nd 2012 | title= The Liikanen report decoded |pages=n.a. |journal=[[Financial Times]] |issue=}}</ref>

The report was subject to a 6-week public consultation or comment period, which closed on 11/13/2012. The 89 responses, mainly by financial organizations, are summarized in a 6-page paper by the group at http://ec.europa.eu/internal_market/consultations/2012/hleg-banking/replies-summary_en.pdf. The individual public comments are uploaded at: http://ec.europa.eu/internal_market/consultations/2012/hleg-banking/contributions_en.htm.
The report is currently considered by the European Commission.
==Reception by the Financial Industry==
--Christian Clausen, president of the [[European Banking Federation]], head of the Swedish bank Nordea, called the proposal “unnecessary” and “completely wrong.” <ref>EBF 13 page comments to EU, 11-13-12. http://www.ebf-fbe.eu/uploads/D1994D-2012-Final%20EBF%20consultation%20response%20for%20the%20final%20report%20from%20the%20Liikanen%20HLEG.pdf</ref>

--The German bank lobby, the [[Bundesverband deutscher Banken]] claimed, proposals amounted to overregulation, would ruin Germany’s reputation as a location for finance and thus could damage the German economy. BdB press statement 10/2/12 <ref>http://bankenverband.de/presse/presse-infos/trennbanken-kein-geeigneter-weg-zur-erhoehung-der-finanzstabilitaet-in-deutschland</ref><ref>Reuters 1/16/13 http://www.reuters.com/article/2013/01/16/germany-liikanen-idUSL6N0ALG4A20130116</ref>

--World Savings Banks Institute - European Savings Banks Group: "Excess of financial regulation". ESBG common response to the European Commission consultation on the Liikanen Report recommendations. WSBI-ESBG (World Savings Banks Institute - European Savings Banks Group), 9-page report, 11/2012. <ref>http://www.esbg.eu/uploadedFiles/Position_papers/ESBG%20position%20paper%20on%20the%20Liikanen%20Report%20consultation.pdf accessdate 3-15-13</ref>


==Media Reports==
The Liikanen report decoded. Financial Times, 10/2/2012.<ref>http://www.ft.com/cms/s/0/0ff0b3a4-0c8a-11e2-a73c-00144feabdc0.html<ref>

The Liikanen banking reform proposals. OnlyStrategic. UK Financial Newslink. 10/5/12. <ref>http://www.onlystrategic.com/features/index/id/1/article/64822/key/ec0ef6b67ab09e6ffd0bf2c39102311b<ref>

The Liikanen review. Into the ring. A European report recommends yet another way to ring-fence banks. The Economist, 10/6/2012.<ref>http://www.economist.com/node/21564233<ref>

Liikanen Report: Half-hearted attempt to solve the “too big to fail” problem. by Peter Wahl, Centre for Research on Multinational Corporations Newsletter, Issue 15, December 2012 (SOMO=Stichting Onderzoek Multinationale Ondernemingen)"The report does not draw the most obvious conclusions from its own analysis, i.e. to split the big banks in such small entities that a default cannot affect the entire sector and the economy." <ref>http://somo.nl/dossiers-en/sectors/financial/eu-financial-reforms/newsletter-items/issue-15-december-2012/liikanen-report<ref>

Liikanen’s Bank-Separation Proposal Sparks Opposition, EU Says. Bloomberg news 12/20/12.<ref>http://www.bloomberg.com/news/2012-12-20/liikanen-s-bank-separation-proposal-sparks-opposition-eu-says.html</ref>

⚫
==References==
{{reflist}}
{{reflist}}


Revision as of 20:36, 15 March 2013

The Liikanen Report or "Report of the European Commission’s High-level Expert Group on Bank Structural Reform" (known as the "Liikanen Group") is a set of recommendations which were published in October 2012 by a group of experts led by Erkki Liikanen, governor of the Bank of Finland and ECB council member. [1]

Formation and objectives

The Liikanen Group was molded after the UK’s Independent Commission on Banking: EU Internal Markets Commissioner Michel Barnier set up the group in November 2011 to consider structural reforms to the EU banking sector, to promote financial stability and efficiency, in the context of the European sovereign-debt crisis and great recession. The Liikanen Report is intended to serve as the starting point for new EU directives to reform the EU banking sector.

The “Liikanen Group”

According to the EU Commission, members of the ad hoc “Liikanen Group” were appointed solely on the basis of their technical expertise and professional merit. </ref>[2] The 11 member group held monthly meetings, invited different stakeholders, and organized a public consultation in May 2012. It was composed of [3]:

Erkki Liikanen, chairman, Governor of the Bank of Finland and member of the ECB Governing Council (2004-present).

Hugo Bänziger [4], visiting professor at the London School of Economics and the Lee Kwan Yew Institute for Public Policy and a member of the board of Eurex,Swisseconomist and bank manager, former board member and chief risk officer of Deutsche Bank(2006-5/2012). He previously worked for global investment banksMorgan Grenfell and Credit Suisse after starting his career at the Swiss Federal Banking Commission.

José Manuel Campa[5], an alumnus of Harvard University, professor of financial management at IESE Business School at the University of Navarra, former State Secretary at the Ministry of Economy and Finance, Spain (2009-12/2011)[6]

Louis Gallois, an alumnus of the HEC Paris School of Management, former chief executive of EADS, a Franco-German defense and aviation group, as well as SNCF,France's national state-owned railway company, Aerospatiale and SNECMAa French multinational aircraft and rocket engine manufacturer, former senior member of the French Ministry of Economy and Finance, the French Ministry of Research and Industry and the French Ministry of Defense.

Monique Goyens, director general of BEUC (2007-present), the EU consumers' rights organization representing 42 independent national consumer associations in 31 European countries acting as a consumer voice in Brussels, Belgium.[7]

Jan Pieter Krahnen, chair of the corporate finance department at Goethe University in Frankfurt/Main, Germany (1995-present), Director of the Center for Financial Studies, a non-profit research institution in Frankfurt/Main and a Center for Economic and Policy Research(CEPR)research fellow in Financial Economics.

Marco Mazzucchelli, alumnus of Bocconi University, visiting scholar at the MIT Sloan School of Management has has a career in investment banking, former managing director of the Global Banking and Markets division of the Royal Bank of Scotland, Head of the region Europe, the Middle East and Africa (EMEA), positions at Credit Suisse, Monte dei Paschi di Siena, Sanpaolo IMI and Morgan Stanley among others.

Carol Sergeant, chairwoman of the UK Treasury steering group charged with devising so called ‘simple’financial products that can easily be understood by retail consumers and forming financial markets experts at the Bank of England, non-executive director of Secure Trust Bank[8], chairman of the whistle blowing charity 'Public Concern at Work'[9] and special advisor to bank chief executives and chairmen. She was Chief Risk Officer of Lloyds Banking Group (2004-2010), Managing Director on the Board of the UK Financial Services Authority in charge of the regulatory process and risks directorate( ?-2004) after starting her career at the Bank of England.

Zdenek Tuma, director at KPMG, a global audit,tax and advisory company and former governor of the Czech National Bank(2000-2010), after various posts in academia and the private sector.

Jan Vanhevel, former Chief Executive Officer (7/2009-5/2012)of the KBC Group,a Belgian banking and insurance group, where he advocated for social responsibility [10].

Herman Wijffels, economist, part-time professor in Sustainability and Societal Change at Utrecht University(2009-present), former executive board member of Rabobank(1981-1999, chair 1986), Chairman of the Dutch Social Economic Council (Sociaal-Economische Raad, SER, 1999-2006) `informateur’, coordinating the negotiations between the political parties for the cabinet-to-be in 2007 and former Dutch representative of the World Bank(2006-2009).[11]

Filling the regulatory gap

European scholars have long discussed the need for an EU-wide banking law in light of the European sovereign-debt crisis, recommending the adoption of structural reforms, notably in France where SFAF and World Pensions Council (WPC) banking experts have argued that, beyond fragmented national legislations, such statutory rules should be adopted and implemented within the broader context of separation of powers in European Union law.[12] [13]

This perspective gained ground after the Libor scandal broke news in June 2012, with mainstream opinion leaders such as Financial Times editorial writers in the UK and the Centre des Jeunes Dirigeants (CJD),a Business Federation in France calling as in 2008, for adoption of an EU-wide "Glass Steagall II" [14] [15]. Likewise, former Citigroup Chairman and CEO Sandy Weill, considered one of the driving forces behind the financial deregulation and “mega-mergers” of the 1990s, surprised financial analysts in Europe and North American July 25 2012, by “calling for splitting up the commercial banks from the investment banks. In effect, he says: bring back the Glass-Steagall Act of 1933 which led to half a century, free of financial crises.” [16]

Final report

The 153 page final version of the report was published on Tuesday October 2, 2012. The recommended regulatory dispositions combine key features of the Dodd–Frank Wall Street Reform and Consumer Protection Act and, more pronouncedly, the UK’s Independent Commission on Banking, the "Vickers report" from 2011. The report recommended actions in the following 5 areas:

1) Mandatory separation of proprietary trading and other high-risk trading;

2) Additional separation of activities, conditional on the recovery and resolution plan (RRP)[17];

3) Amendments to the use of bail-in instruments as a resolution tool;

4) Toughening of capital requirements on trading assets and real estate related loans (ie mortgages), aka fractional banking ;

5) Strengthening the governance and control of banks – including measures to rein in or bail-in bonuses.

The report gives a good overview of the structure and evolution of the EU banking sector with its tradition of universal banking, and assesses banking reforms in the post-European debt crisis era. It provides a range of proposals to remedy deficits in bank reforms, such as improving of already existing regulations in risk management under the Basel III rules, corporate governance, bank resolution mechanisms, management and strengthening of supervision and compensation rules for bank staff. It advocates for a better alignment of executive pay with long term corporate and national interests, by raising the fixed income or “debt” component of bankers’ bonuses, meaning the bonuses could be decreased if short-term profits yield long-term troubles, paying bonuses with bonds. The Swiss bank UBS adopted the latter so called "bail-in bonds". 2/5/13. [18]

Re 1) Mandatory separation of high-risk trading activities i.e. compartmentalization, or “ring-fencing” of proprietary and third-party trading activities, without breaking banks up is to include risk management and capital allocation: “the trading division will have to hold its own capital, meaning that it stands or falls by its own activities and cannot, in theory at least, knock over the bread-and-butter retail banking operations." Universal banks with very large trading arms either in absolute terms (over €100bn-£80bn-$130bn-¥10.2tr-Y821bn) or in proportion to the rest of the bank (greater than 15%-25%) should be forced to hold separate capital for its trading operations.

Re 2)-5) Mechanisms to allow a bank to enter bankruptcy instead of the public having to rescue it: "The idea is to get taxpayers off the hook by ensuring that governments do not have to step in to safeguard deposits if traders blow a hole in their balance sheet”. [19]

The report was subject to a 6-week public consultation or comment period, which closed on 11/13/2012. The 89 responses, mainly by financial organizations, are summarized in a 6-page paper by the group at http://ec.europa.eu/internal_market/consultations/2012/hleg-banking/replies-summary_en.pdf. The individual public comments are uploaded at: http://ec.europa.eu/internal_market/consultations/2012/hleg-banking/contributions_en.htm.

The report is currently considered by the European Commission.

Reception by the Financial Industry

--Christian Clausen, president of the European Banking Federation, head of the Swedish bank Nordea, called the proposal “unnecessary” and “completely wrong.” [20]

--The German bank lobby, the Bundesverband deutscher Banken claimed, proposals amounted to overregulation, would ruin Germany’s reputation as a location for finance and thus could damage the German economy. BdB press statement 10/2/12 [21][22]

--World Savings Banks Institute - European Savings Banks Group: "Excess of financial regulation". ESBG common response to the European Commission consultation on the Liikanen Report recommendations. WSBI-ESBG (World Savings Banks Institute - European Savings Banks Group), 9-page report, 11/2012. [23]


Media Reports

The Liikanen report decoded. Financial Times, 10/2/2012.Cite error: A <ref> tag is missing the closing </ref> (see the help page).

References

  1. ^ Liikanen; et al. (October 2 2012). "High-Level Expert Group on Reforming the Structure of the EU Banking Sector" (PDF). EU. Retrieved 4 Oct 2012. {{cite journal}}: Check date values in: |date= (help); Explicit use of et al. in: |first= (help)
  2. ^ Thomas, David (Feb 23, 2012). ""Meet Michel Barnier's regulation team"". Financial News. {{cite news}}: |access-date= requires |url= (help); Text "http://www.efinancialnews.com/story/2012-02-23/meet-michel-barniers-regulatory-team" ignored (help)..
  3. ^ http://ec.europa.eu/internal_market/bank/docs/high-level_expert_group/members_en.pdf
  4. ^ http://de.wikipedia.org/wiki/Hugo_B%C3%A4nziger
  5. ^ http://es.wikipedia.org/wiki/Jos%C3%A9_Manuel_Campa
  6. ^ http://www.bruegel.org/about/person/view/205-jose-manuel-campa/
  7. ^ http://ec.europa.eu/environment/resource_efficiency/re_platform/about/members/monique_goyens/index_en.htm
  8. ^ http://www.securetrustbank.com/
  9. ^ www.pcaw.org.uk
  10. ^ KBC's CSR report of 2011 http://www.kbc-csr.com/a-word-from-our-ceo/
  11. ^ http://www.circleeconomy.com/people/circle-consciousness/herman-wijffels/
  12. ^ Firzli, M Nicolas (January 2010). "Bank Regulation and Financial Orthodoxy: the Lessons from the Glass-Steagall Act" (PDF). Revue Analyse Financière (in French) (34): 49–52. Retrieved 14 July 2012.
  13. ^ Lepesant, Marie (June 11, 2012). "Le Modèle des Banques Françaises en Question". Le Parisien (in French). Retrieved 12 June 2012. - Quoting M. Nicolas Firzli of the World Pensions Council (WPC).
  14. ^ Editorial, Page (July 3, 2012). "Restoring trust after Diamond". Financial Times. Retrieved 15 July 2012. quoting FT Editorial Page.
  15. ^ "Objectif Oïkos: 12 Propositions pour 2012". Propositions du CJD (in French). November 2011/June 2012. Retrieved 12 June 2012. {{cite news}}: |first= missing |last= (help); Check date values in: |date= (help) p. 98.
  16. ^ Denning, Steve (July 25, 2012). "Rethinking Capitalism: Sandy Weill Says Bring Back Glass-Steagall". Forbes. {{cite news}}: |access-date= requires |url= (help); Text "http://www.forbes.com/sites/stevedenning/2012/07/25/rethinking-capitalism-sandy-weill-says-bring-back-glass-steagall" ignored (help) Quoting interview on CNBC’s Squawk-Box.
  17. ^ Definition: sometimes known as "living wills" of an institution. Recovery plans, which come into play when a firm falls under extreme stress, outline actions to maintain the firm as a going concern. Resolution plans would be resorted to in the event of failure of a financial institution and aim to manage its resolution in a controlled manner with minimum cost and systemic disruption.
  18. ^ http://edition.cnn.com/2013/02/06/business/ubs-new-bonus-clawback-rule
  19. ^ Burgis, Tom (Oct. 2nd 2012). "The Liikanen report decoded". Financial Times: n.a. Retrieved 13 October 2012. {{cite journal}}: Check date values in: |date= (help)
  20. ^ EBF 13 page comments to EU, 11-13-12. http://www.ebf-fbe.eu/uploads/D1994D-2012-Final%20EBF%20consultation%20response%20for%20the%20final%20report%20from%20the%20Liikanen%20HLEG.pdf
  21. ^ http://bankenverband.de/presse/presse-infos/trennbanken-kein-geeigneter-weg-zur-erhoehung-der-finanzstabilitaet-in-deutschland
  22. ^ Reuters 1/16/13 http://www.reuters.com/article/2013/01/16/germany-liikanen-idUSL6N0ALG4A20130116
  23. ^ http://www.esbg.eu/uploadedFiles/Position_papers/ESBG%20position%20paper%20on%20the%20Liikanen%20Report%20consultation.pdf accessdate 3-15-13
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