Warning as EU report into crisis released

The separation of proprietary trading from retail banking functions is one of the most contentious recommendations of the high level expert group into the reforms of the European banking sector, which was released yesterday.

But some market sources warn that this may backfire because it will mean less liquidity in equity and bond markets and increase the cost of funding in the future. But others say it is necessary measure to protect deposits and prevent a financial crisis, on a scale similar to the past few years from happening again.

The Liikanen report is the EU’s response to the financial crisis which erupted in 2008. The former chairman of the US Federal Reserve Paul Volcker compiled the US’s report into the banking crisis while in Britain, the Vickers report was released earlier this year.