Treasurers worried that bond market liquidity will fall as the US Volcker Rule curtails risk-taking by regulated banks may take some hope in the difficulty similar measures face in the European Union. The EU may step back from implementing a region-wide Volcker-like solution due to opposition from some member states and the European Central Bank.
Nonetheless, England, France and Germany are all committed to implementing similar measures on a national level and since they account for the bulk of market making activity, the EU’s decision may have little consequence.
European commissioner Jonathan Hill has been critical of the proposed rule, and has suggested doing a cost-benefit analysis of all the regulatory changes put in place since the end of the financial crisis. This is a major goal of the region’s banks also, which hope that it will show that regulation has stifled the capital markets.
The European version of Volcker has been in the works since 2011 but a draft did not emerge until January of this year. The EU would ban proprietary trading by the biggest banks starting in 2017 and would force them to separate other trading activities the following year. It would apply to a bank if, for a period of three consecutive years, it maintains total assets of at least €30 billion and trading activities of at least €70 billion, or 10 percent of total assets. This means the EU rule would apply to far fewer banks than the Volcker Rule, which affects mid-sized institutions as well.