Regulating the Structure of the EU Banking Sector

Abstract

The article analyses recent developments in the regulation of the institutional structure of banking groups in the European Union. It discusses the evolution of the universal banking model in Europe and how the global banking crisis of 2007–2009 has led to structural regulatory reforms of the European banking industry. Particular attention is paid to the British banking sector and to the United Kingdom’s ring-fence banking legislation and structural regulatory reforms. The article analyses the EU Commission’s proposed legislation to regulate the organisational structure of European banks and banking groups and compares it to structural reform legislation in Germany and France. It also analyses some of the main challenges concerning implementation of EU structural banking reforms and whether they can be effectively coordinated with existing bank supervisory and resolution practices. The article concludes by suggesting that the various limitations and prohibitions on bank trading activities in structural regulatory reforms will probably not lead to a reduction of harmful risk-taking in the financial sector, but to a shift of risk-taking away from the banking sector (where it can be monitored) to under-regulated areas of the financial system.