The European Commission has published the final report prepared by the High-level Expert Group on reforming the structure of the EU banking sector. The group chaired by Erkki Liikanen Finnish politician and governor of the nation's bank, presented the main findings to Michel Barnier, commissioner for internal market and services.

Against the backdrop of the financial crisis, Barnier established the group in February 2012. The group's mandate was to consider in depth whether there is a need for structural reforms of the EU banking sector or not and to make any relevant proposals as appropriate, with the objective of establishing a safe, stable and efficient banking system.

In summary, the group recommends actions in the following five areas:

• Mandatory separation of proprietary trading and other high-risk trading activities

  Proprietary trading and other high-risk trading activities should be assigned to a separate legal entity if the activities to be separated amount to a significant share of a bank's business and are above a certain threshold. This would ensure that trading activities beyond the threshold are carried out on a stand-alone basis and separately from the deposit bank. As a consequence, deposits, and the explicit or implicit guarantee they carry, would no longer directly support risky trading activities.

• Possible additional separation of activities conditional on the recovery and resolution plan

  Effective and realistic recovery and resolution plans must be drawn up and maintained by the banks, as proposed in the Commission's bank recovery and resolution directive. The resolution authority should request a wider separation than the considered mandatory separation above, if this is deemed necessary, to ensure resolvability and operational continuity of critical functions.

• Possible amendments to the use of bail-in instruments as a resolution tool.

  The use of designated bail-in instruments is strongly supported by the group. The position of bail-in instruments in the hierarchy of debt commitments in a bank's balance sheet must be clear so that investors know the eventual treatment in case of resolution. Banks should build up a sufficiently large layer of 'bail-inable' debt. Such debt (or an equivalent amount of equity) would increase the overall loss-absorptive capacity, decrease risk-taking incentives, and improve transparency and the pricing of risk.

• A review of capital requirements on trading assets and real estate related loans

  More robust risk weights in the determination of minimum capital standards and more consistent treatment of risk in internal models should be applied. Once the Basel Committee has concluded its review of the trading book, the Commission should assess whether the results would be sufficient to cover the risks of both deposit banks and trading entities in Europe.

• A strengthening of the governance and control of banks

  It is necessary to augment existing corporate governance reforms by specific measures to 1) strengthen boards and management; 2) promote the risk management function; 3) rein in compensation for bank management and staff; 4) improve risk disclosure, and 5) strengthen sanctioning powers.

Michel Barnier said: 'This is an important report that will inform our policy on regulating the financial sector. The report underlines the excessive risks taken by banks in the past, and makes important recommendations to make sure that banks work in the interest of their customers'.