By Martin Hesse and Christoph Pauly
EU Commissioner Michel Barnier has asked experts to examine the possibility of splitting up major European banks to avoid future bailouts at taxpayers’ expense. But even less radical intervention in the banking sector could have drastic consequences for the industry, and its powerful lobby is resisting any such change……
[Daniel Zimmer, head of the German Monopolies Commission] notes that Germany has already taken steps in the right direction. Under the new German restructuring law, when a bank is in trouble the most critical parts of the institution can be transferred to a bridge bank, allowing the remainder to be liquidated. In such cases, the shareholders and most of the bank’s creditors would not be compensated. A fund made up of contributions from banks would cover restructuring costs.
But there is a problem with the new system. “In a worst-case scenario, a bank has to be split up into vital and other parts within a single weekend,” says Zimmer. “This is only possible if there is already a clear separation between the two parts beforehand.” This is why Zimmer believes it makes sense to establish the dividing line in advance, in a manner similar to what Britain’s Vickers Commission envisions.