LONDON (Reuters) - A European Union advisory group made recommendations on Tuesday to make banks safer, borrowing ideas being introduced in the United States and Britain.
The European Commission will study the group’s recommendations before making any legislative proposals that would need approval from EU states and the European Parliament.
The main recommendations are:
* Mandatory legal separation of deposit-taking from proprietary trading (the bank taking bets with its own money), market-making, loans and unsecured credit exposures to hedge funds. Using foreign exchange and interest rate options and swaps for non-banking clients could remain in the deposit-taking arm. All operations would come under an overall universal banking holding company
* Other activities could also be separated if the bank still appears too complex to be wound down easily if in trouble
* Amend EU plans for imposing losses on a bank’s bonds to fund a bailout. A separate category of “bail in” debt excluded from these planned rules would be created
* A check on whether the global Basel Committee’s study of capital requirements for trading books introduces high enough capital charges
* Specific capital charges could be targeted to cover property loans in the deposit-taking arm. Caps on home loans should be part of every national supervisor’s toolkit
* Strengthening the governance and control of banks, such as a “fit and proper” test for top management; a portion of a banker’s bonus could be in “bail-in” debt; a cap on bonuses to no more than fixed salary should be assessed - a step the European Parliament is already proposing.
Reporting by Huw Jones; editing by David Stamp