No separation between deposit and investment banks

- On Monday, the finance minister will reveal his “banking law”.

- Bonuses will still be allowed under “exceptional circumstances”.

- Savings accounts tax exemptions will be extended to other investments.

According to our colleagues at De Standaard, the kern (restricted minister council) will meet today to discuss the banking law. This draft, now in finance Minister Koen Geens’ (CD&V) hands, was included in the government agreement two years ago. It’s a direct result of the banking crisis, which forced the government to consider how to save the banks without reaching into taxpayers’ pockets and without compromising their savings. It was the world’s worst kept secret, but it was decided after several preliminary ideas not to totally sever deposit banks from investment banks.

Geens’ proposal follows the same lines as that of the National Bank of Belgium (BNB): trading activities can be carried out but they will be separated from deposit activities (they will be clearly defined) and will be strictly regulated. They cannot exceed certain limits especially concerning actual equity. “Trading activity cannot endanger Belgian savings,” explains a trusted source. Banks conducting trading activity will be subject to two conditions: the bank and the business must provide an adequate equity buffer using their own funds for the proprietary account which cannot exceed 2.5% of the bank’s funds. If the trading activity increases, it must migrate to a separate financial vehicle according to our colleagues at De Standaard.

Tax exemptions extended to investments?

The second part of this “mammoth” law deals with banker compensation. Geens is primarily basing this part on a European directive that limits the variable compensation to not exceed the total of fixed compensation.  That’s not all: although the Di Rupo government has already pronounced itself on the issue, Geens has not completely closed the door to bonuses. He made the statement prior to summer break that, “Banks that are in trouble must be able to attract crisis managers.” This has drawn socialist fire. Now the minister proposes the acceptance of variable compensation for banks that are on the path to recovery and have shown a clean bill of health to the European Commission. However, Geens clarifies that bonuses could only be given out in exceptional circumstances.

Finally, the last part of the “banking law” addresses the savings account tax system. The European Union had previously deemed it as discriminatory. In order to avoid this pitfall, the minister will propose extending the tax exemption to other savings and investment products. All interest and dividends will be gradually included in the €1,880 exemption. According to our information, the finance minister would ask banks to provide the necessary information on every taxpayer requesting this tax exemption.

The remaining question is if the socialists will go along with Geens’ proposal. Deputy prime minister Laurette Onkelinx, who has been heard frequently on the subject, fiercely defends the idea of a separation between deposit and investment banks. Paul Magnon, however, left a small opening on the matter at the end of October. Banker compensation remains a touchy subject. Both the Flemish and Francophone sides have let it be known that there is no agreement on Koen Geens’ draft. The government will resume negotiations today at 9 a.m.


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