BRUSSELS — Banks in the European Union should quarantine their risky trading activities from their everyday savings and lending operations, as a way to safeguard the financial system and avoid future bailouts at taxpayers’ expense, a panel of financial experts recommended Tuesday.
The recommendation, from a group led by the Bank of Finland’s governor, Erkki Liikanen, in some ways recalls the old Glass-Steagall Act in the United States, which for decades after the 1929 stock market crash kept stock trading and other investment banking activities separate from retail lending. The US restrictions were repealed in 1999, and many critics have said that the change paved the way for the sort of risk taking that eventually required Washington to bail out the country’s biggest banks in 2008.
The European proposal would stop short of all of Glass-Steagall's restrictions. But it is an indication of how intent many policy makers have become on responding to recent bank failures in Britain, Spain, and elsewhere that have left European governments with huge debts, stymied growth, and stifled the region’s recovery from its lingering debt debacle.
The report will now be pored over by leading European Commission officials who will decide whether to seek final approval by the 27-nation European Union.