FFI: Banks’ structural restrictions would impede growth

​The Federation of Finnish Financial Services (FFI) believes that banks’ structural restrictions would weaken their ability to finance economic growth. On 29 January, the Commission proposed new rules that prohibit the largest banks from engaging in proprietary trading. Banks may also be required to separate their market-making activities, and certain other activities that serve customers, into specific trading entities.

FFI’s Managing Director Piia-Noora Kauppi questions the Commission’s proposal because it is likely to weaken the recovery of the EU economy.

“Structural restrictions would ultimately be detrimental to bank customers, because banks’ capability to provide diverse and flexible services for customers would weaken. For example the separation of market making would hinder corporate financing,” Ms Kauppi says.

According to Ms Kauppi, separating activities would diminish the synergy and diversification benefits of the universal banking model, and would raise costs.
“The crisis over the past few years has proven that universal banks – which consist of different kinds of retail, wholesale and investment bank activities – have in general fared quite well under difficult conditions. The variety of their activities has diversified risks and balanced income,” Ms Kauppi states.

Ms Kauppi believes that the extensive regulatory reforms currently underway in the EU should be finalised carefully and without undue haste.

“Only when their full impact is known, can we assess whether other reforms are also needed to secure the stability of the financial market.”

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Financial and Prudential Regulation

Veli-Matti Mattila

Director, Chief Economist