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Germany is proposing new banking laws that stop short of forcing most lenders to separate the riskier side of their business from high street banking.

The draft law, approved by Finance Minister Wolfgang Schäuble and Chancellor Angela Merkel’s coalition cabinet on Wednesday, would force separation only when such activities involved assets of more than 100 billion euros or 20 percent of a bank’s balance sheet.

Schäuble said that would be no more than a dozen banks.

There is also provision for jailing executives for up to five years if they are found guilty of reckless behaviour that puts their bank at risk.

‘Leading nowhere’

The German banking association criticised the proposed changes saying they would weaken Germany as a financial centre and are just part of government election campaigning.

Association president Andreas Schmitz said: “The package of measures to regulate the financial markets agreed by the cabinet today leads nowhere.”

“The draft law weakens Germany’s financial centre and the time-tested German system of universal banks. It is owed above all to the coming election campaigning.”

Schmitz added it made no sense to do this ahead of pending European plans.

“Due to the different initiatives, banking regulation is increasingly similar to a labyrinth from which nobody knows the exit.”

European wide reforms

European countries are reforming their banking systems to prevent a repeat of the 2008 financial crash, trying to strike a balance between popular calls for banks to be reined in and warnings that too tight a leash will choke off recovery.

Britain’s finance minister, George Osborne, announced on Monday, for example, that British banks failing to shield their day-to-day banking from risky investment activities could be broken up.

The move comes four months after an EU advisory group led by Finnish central banker Erkki Liikanen unveiled reform proposals to shield taxpayers and savers from bank collapses.

In the absence of an international agreement until now, Germany has pushed ahead with its own regulation, which critics say is intended to spare its banks some of the tougher ring-fencing moves outlined by the Liikanen group.

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