Banks braced for trading activities review Europe's big banks are braced for a long-awaited review that will propose ringfencing their trading activities as Brussels embarks on EU-wide reforms to the structure of banking. The trading ringfence is set to be the central recommendation on Monday of the Liikanen Group, established nearly a year ago by Michel Barnier, the EU commissioner responsible for financial services, to help de-risk Europe's big banks. The idea draws on the UK's Vickers Commission, which last year recommended that banks" retail operations should be ringfenced, and the US Volcker rule, limiting proprietary trading. At a final meeting last week, the group, which comprises a mix of policy makers and former banking industry executives chaired by Finnish central bank chief Erkki Liikanen, reached an agreement on its conclusions, which are now under consideration by Mr Barnier. Banks were caught off-guard by leaks from the Liikanen Group deliberations, first reported in the Financial Times early last month, which indicated the recommendations would be much more radical than first envisaged. Since then, industry nerves have been somewhat soothed by Mr Barnier, who has privately stressed that the report is independent and that a top priority for him will be ensuring lending is not choked off. Before embarking on any legislative proposals based on Liikanen, Mr Barnier is likely to launch a wide-ranging consultation and order a full impact assessment, which will consider the interaction with existing reforms to make banking safer. "There is a long way to travel," said one senior EU official. Banks will also be heartened that, according to people close to the process, the Liikanen Group will not recommend the capital levels appropriate for the ringfenced operations, giving scope to minimise the impact of any structural reform. "It is not up to the group to set the details of prudential rules," said one. It is not clear whether a threshold will be set for the maximum volume of trading activities as a proportion of total assets before a ringfence must be created. Some of Europe's biggest banks had indicated that if the threshold were kept as low as 5 per cent, as was earlier proposed, that would be punitive. Banks have lobbied for any threshold to be set at 10 per cent or higher, and for client trading - as opposed to proprietary business - to be excluded. Mr Barnier's own views on reform remain something of a mystery to both members of the Liikanen panel and the industry. Some bankers have taken comfort from the fact that the commissioner is a long-standing champion of the universal banking model prevalent in France and expect the reforms to be less drastic in execution than that implied in the hard-hitting report. At the same time, Mr Barnier has kept closely abreast of the panel's deliberations and the far-reaching implications of the conclusions, which could potentially fit with the calls for structural banking reforms promised by President François Hollande of France. Christian Clausen, president of the European Banking Federation and chief executive of Nordea Group, warned against trying to "ringfence our way out" of this crisis or trying to ban specific activities. There is a limit to the cost you can impose on the financial sector where it stops making money. We are maybe not there but we are approaching," he said. If Mr Barnier opts for a pan-EU solution, one potential flashpoint will be with the UK's implementation of the Vickers reforms. Any proposal is unlikely to override Vickers, but the additional layer will anger UK investment banks, potentially exacerbating friction between London and Brussels.