EU regulators: getting tough with the banks
Monday, 2 November, 2009 Leave a comment
The European Commission is forcing governments to begin dismantling several banks that received taxpayers’ cash in the wake of the financial crisis. In Holland, ING announced plans for its break-up and the UK government is considering similar measures for Lloyds Banking Group and Royal Bank of Scotland, highlighting that national policy is increasingly being driven by supranational bodies.
The past few days have proved lively for the European banking industry. The European Commission has told governments across the EU to assemble plans to break up the banking giants that were given hundreds of billions of euros of state funds to prevent their collapse. In Holland, ING, which received E10 billion in government aid last year, has had to announce plans to separate and then sell off its insurance and investment management business. In response to demands from the EU competition commissioner, the bank will divest itself of its insurance arm, worth E12-15 billion, and will also sell its US internet banking arm, reducing assets by about 45%. This follows a similar commission ruling in May 2009 that saw Germany’s Commerzbank also cut its balance sheet by a similar proportion.
There are clear parallels to the UK. The EU has just approved government plans to split Northern Rock into a ‘good’ bank and a ‘bad’ bank, with the good bank to be sold to a suitable bidder in 2010. Until the bank is sold off, the EU will impose limits on the amount it can take in deposits and lend out.
Ahead of a further probable ruling, the UK government has started to investigate how best to break up Lloyds Banking Group and RBS. It is looking at the viability of reducing Lloyds’ share of the retail market from 30% to 25%, and forcing it to sell off a seventh of its 3,000 branches. RBS, meanwhile, will likely have to sell its English-based RBS branches and Scottish-based NatWest branches. Whether or not these plans will be sufficient to appease the European Commission is as yet unclear.
It is noteworthy that the government is portraying these moves as its own initiative to inject competition into the banking sector, rather than admitting its hand has been forced by the EU. This could indicate an unwillingness to publicly admit how much power the EU has over domestic policy, as this may prove contentious for the British electorate. Nevertheless, the trend seems inexorable and the EU looks set to become an ever more intrusive player on the UK banking scene.