Banking reform: Banks should operate on behalf of the real economy

The banking sector should be reformed so that retail banking activities such as taking deposits, operating bank accounts and granting loans, are separated from riskier activities such as trading with financial instruments and derivatives.


That is the message of a report adopted by the EP’s economic committee on 18 June. We spoke to Arlene McCarthy, a British member of the S&D group who wrote the report, about why an overhaul of the banking sector is needed.

A report different from other rules on the banking sector

The report is an overarching framework that looks at how banks operate. The reason why we have to tackle this is that the excessively risky activities in the banking sector led to the banking crisis and undermined retail banking activities such as lending that are essential for the real economy.

We saw it in the crisis in Cyprus that for days ordinary citizens didn’t have access to their bank accounts: they couldn’t withdraw money or pay their bills, salaries weren’t paid… The whole objective of structural reform is to avoid that situation.

Separation of retail and investment banking

Retail and investment activities should be run separately, so that if things go wrong, we can set them right easily and have the banks continue to operate on behalf of citizens and the real economy.

We shouldn’t have a situation where it is the taxpayer or governments bailing out these excessively risky activities. If banks want to take those excessively risky activities, they have to take the risk and do it on their own account.

Calling for more competition in the sector

We don’t want to get rid of banks, but some competition might be healthy for them so that the citizens have better choice and get more access to banking products.

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