Too much, too fast the sources of banks' opposition to European banking structural reforms

Abstract

This article examines banks' positions on the 2014 proposals for EU banking structural reforms. Centralization of authority in banking regulation and supervision has been a legislative priority in the European Union (EU) since 2008 in order to address regulatory shortcomings in the aftermath of the global finanical crisis. European decision makers have introduced more stringent capital adequacy requirements and transferred greater powers to the European Supervisory Authorites. In 2014, the European Commission put forward a proposal for banking structural reforms comprised of two elements: a ban on proprietary trading and mandatory separation of some trading activities from the deposit-taking entity. We refer to 'regulatory cascading' in order to conceptualize the rapid and successive introduction of legislative packages designed to fix problems and gaps in the EU banking regulatory framework. Our analysis shows that the majority of European banks and financial services associations are opposed to further banking structural reforms at the EU level. We find evidence that banks domiciled in member states that have already passed reforms prefer those over EU alternatives. Large internationalized banks are most opposed to further EU banking structural reforms.