An expert group led by Bank of Finland governor Erkki Liikanen has concluded that European banks should separate their retail business from investment asset management, Reuters reports.

Although the group's recommendations are not binding, they will help the European Union develop new banking regulation. The group also said that real-estate and proprietary trading risks should be backed by greater capital buffers.

Additionally, the experts suggested that part of management's bonuses should be paid in bonds subject to default in case of a bailout. They recommended additional limits on banker compensation, such as limiting the overall amount of bonuses to less than what banks pay in dividends.

"The Group's recommendations regarding separation concern businesses which are considered to represent the riskiest parts of trading activities and where risk positions can change most rapidly," Mr. Liikanen said in a letter to summarise the conclusions.

"Separation of these activities into separate legal entities within a group is the most direct way of tackling banks' complexity and interconnectedness," he said.

SC

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