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Final Report [“Liikanen Report”]

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Final Report [“Liikanen Report”]

European Commission,

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The European Commission issues the official report on how to make EU banking less risky.

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Editorial Rating

7

Qualities

  • Comprehensive
  • Analytical
  • Overview

Recommendation

The European Union assembled its High-Level Expert Group in February 2012 to study the European banking sector and to offer recommendations for reform. The final report of the Group, which was led by Erkki Liikanen, provides a comprehensive overview of the evolution of the economic crisis as it morphed from financial panic to deep recession. It also covers the crisis’s impact on European banks and economies. The Group suggests a number of measures policy makers should institute to reduce the probability of bank failures, including the suggestion that banks separate their risky financial trading from their deposit taking. Despite prose that is just as bureaucratic as you might expect, the report reveals an inner thought process sure to intrigue any informed observer and to be even more meaningful to those already parsing national, European and supranational regulatory issues. getAbstract recommends this pan-European report to bankers, policy makers and anyone invested in the future of EU banking.

Summary

Before the Crisis

The global financial crisis that began in 2007 surged over time in “five interlinked...‘waves’”:

  1. “Subprime crisis” – This wave destroyed investment portfolios.
  2. “Systemic crisis” – Liquidity disappeared, forcing governments to intervene.
  3. “Economic crisis” – The Lehman Brothers failure weakened worldwide trade, employment and business activity, thereby damaging economies.
  4. “Sovereign crisis” – In 2009, when Greece first revealed its debt problems, this wave took center stage.
  5. “Crisis of confidence in Europe” – This wave presents an opportunity to assess the European Union’s financial integration so far.

Banks played a central role within each wave. In the EU, the banking sector had expanded in the years prior to 2007. By 2008, the industry’s overall assets reached 350% of the EU’s gross domestic product. This growth indicates that Europe’s economy relies more heavily on bank financing than other economies do. As financial institutions merged and expanded their investment banking, trading and brokerage activities...

About the Author

Erkki Liikanen, governor of the Bank of Finland and a former member of the European Commission, served as chairman of the High-Level Expert Group.

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