A group of European Union advisors said that the risks of investment banking should be separated from retail banking activities as a means of protecting depositors and taxpayers.
Reuters reported Tuesday that the advisory group, set up by the European Commission (EC) and led by Bank of Finland Governor Erkki Liikanen, examined bank structures. In addition to calling for division between retail and investment banking operations, the group also pointed out the risks of property lending, adding that such activities should be shored up with higher capital reserves.
“The group has concluded that it is necessary to require legal separation of certain particularly risky financial activities from deposit taking banks within the banking group,” said the group in its report. It continued, “The activities to be separated would include proprietary trading of securities and derivatives, and certain other activities closely linked with securities and derivatives markets.”