19 May 2015

CFS/ Deutsche Bank: Matherat - New regulatory rules for large international banks

Large international banks have made great progress in increasing their equity, and they prepare for new regulatory rules such as Basel III. There are also other proposals on the way, such as that on a Total Loss-Absorbing Capacity (TLAC) for global systemic banks.

On 11 May, Sylvie Matherat, Member of the Group Executive Committee of Deutsche Bank and Global Head of Government and Regulatory Affairs, gave a talk at the CFS lecture series “Risk and Regulation”. She outlined the challenges for large international banks resulting from new regulations in the financial sector. Before joining Deutsche Bank in 2014, Matherat held several positions in the field of banking regulation and supervision. Most recently, she was Deputy Director General of Operations and Director for Financial Stability at Banque de France and its representative in the Basel Committee on Banking Supervision.

Matherat believes that, in the future, new rules will most likely be met by deleveraging, not by increasing capital further.

She warned that due to the new regulations there could be a tendency for ring-fencing some parts of the banking business in some countries. For example, the Liikanen report proposed to split up retail and investment banking. Also, Deutsche Bank divorced from Postbank, inter alia, because Postbank is very active in the mortgage business. As mortgages are very capital extensive, they are less attractive for large international banks that face higher capital requirements than smaller banks. Thus, this kind of business was no longer profitable for Deutsche Bank but might still be profitable for Postbank on its own. Matherat concluded that some products will no longer be offered by large global banks and that these banks will do their business in fewer countries than before to meet the new regulatory requirements.

 

Matherat also pointed to the fact that the constraints faced by large international banks could lead to a liquidity mismatch. When the demand for credit increases again, banks might not be able to provide enough liquidity for the market. According to Matherat, one consequence could be that shadow banking increases which implies more risks because of the lack of regulation in this sector.

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