In this report, FedFin assesses today’s ground-breaking recommendations from the European Commission’s expert group, often called the Liikanen report after the Finnish regulator who chaired it, the expert group was charged with considering structural reform to EU banking and – to the considerable surprise of many large banks – it did so with gusto. To be sure, the Liikanen conclusions may never be adopted by the European Commission and Parliament, but they nevertheless outline structural changes – especially with regard to ring-fencing – that add yet another redefining element to the array of initiatives confronted by cross-border banks that promote action in individual nations within and outside the EU. Compromises outlined in the report – e.g., new capital buffers between banking and trading – could emerge as alternatives to more sweeping change as the debate advances, making these also a critical part of the expert-group’s findings discussed in this FedFin report. Much in the paper is designed to promote the social utility of large banks, a theme FedFin has highlighted as a major thread in regulatory policy that, if enacted, would lead to a sea-change in the structure and role of commercial banks.
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