AP News

News Summary: Banks urged to fence off risky ops


BUILDING FENCES: European bankers were urged to build a firewall between their retail operations and their riskier trading activities and be prepared to shoulder some losses when their banks fail, according to a report requested by the European Union to help head off another financial crisis.

THE BACKDROP: Government debt bought by banks during the boom times of the eurozone are now no longer considered safe bets and the banks are struggling to unload them at hefty losses. This has been made worse by real estate loans and assets that were turned toxic by a collapse the region's property markets.

RECOMMENDATIONS: The report urged banks to separate their risky investment banking operations like trading from their more traditional retail operations, which lend to customers. The retail banking arm would not be allowed to prop up the investment arm. High-paid bank executives would get part of their compensation in bonds or shares that would be used to rescue a bank if it were to fail.


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