Osborne urges tougher ring-fence rules for EU banks

LONDON Tue Jan 8, 2013 6:55pm GMT

Britain's Chancellor of the Exchequer George Osborne leaves Downing Street in London, December 4, 2012. REUTERS/Stefan Wermuth

Britain's Chancellor of the Exchequer George Osborne leaves Downing Street in London, December 4, 2012.

Credit: Reuters/Stefan Wermuth

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LONDON (Reuters) - British chancellor George Osborne urged European Union policymakers in Berlin on Tuesday to follow his example and toughen bank regulation across the 27-member bloc.

As one of the countries worst hit by the 2007-08 financial crisis - and with relatively hands-off existing regulation - Britain is passing a new law to separate banks' day-to-day retail banking arms from riskier investment bank activities.

The European Commission - which proposes EU legislation - is considering similar proposals from Finnish central banker Erkki Liikanen, but Germany and France, the bloc's two largest economies, have opposed similar ideas in the past.

Osborne urged a rethink at a gathering of German business leaders and senior euro zone politicians in Berlin.

"There is an interesting proposal on the table ... which envisages ring-fencing European banks' retail and investment arms into separate entities," Osborne told the meeting, which included German Chancellor Angela Merkel.

"Britain is already pushing ahead with similar reforms and I think it's an idea that the EU, including Germany, should give serious consideration to implementing," Osborne added, according to a statement provided by his office.

Britain often has a strained relationship with the EU, especially over financial regulation, and is keen to maintain a high degree of national control while the 17 EU members that use the euro press on with plans for a single bank supervisor.

The law going through Britain's parliament, and Liikanen's proposal for the EU, do not go as far as similar U.S. plans, and stop short of fully breaking up banks such as Britain's Barclays or Germany's Deutsche Bank which have significant investment and retail operations.

But they aim to shield taxpayers from having to fund further bailouts and to protect savers from any more banking collapses after more than five years of crisis.

Liikanen's report argued in October for a "legal separation of ... particularly risky financial activities from deposit taking", including banks' trading on their own behalf as well as "activities closely linked with securities and derivatives".

The European Commission intends to decide by the middle of the year whether to go ahead with the plans.

During his trip to Berlin, Osborne also met his German counterpart Wolfgang Schaeuble. Osborne and Schaeuble's offices declined to comment on their discussion.

Ring-fencing banks is opposed by Schaeuble's Christian Democrats, but backed by Germany's main opposition party, the left-wing Social Democrats.

(Additional reporting by Olesya Dmitracova in London and Stephen Brown in Berlin; editing by Ron Askew)

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