18 May 2013

DW: Germany beefs up banking regulations

The Bundestag has passed the Capital Requirements Directive into German law, becoming one of the first EU countries to do so. The Directive contains further new regulations for the banking world.

Germany has introduced some 30 laws regulating the financial market, the most important of which were passed this week. The debates and votes were spread over two days, at the end of which the parliament passed laws on stricter equity regulations, bank "testimonies" (a yearly report in which a bank lays out how it will act in the event of insolvency), penalties for bank executive boards, and the segregation of high-risk financial business from everyday banking activities. The laws are based on European models, since they are designed not only to be implemented in Germany but the whole of Europe. Initially set to be introduced this year, the new rules now won't be introduced until January 1, 2014.

Up until now, German banks were only obliged to keep 2 per cent of their equity in reserve, but by 2019 it will be 7 per cent. Meanwhile, banks considered "system-relevant" - i.e. those whose collapse would threaten the worldwide financial system - could be obliged to keep 10.5 per cent in reserve. In Germany, that would only apply to Deutsche Bank, while the country's second biggest bank, Commerzbank, has been classified nationally system-relevant, and will have to raise its equity ratio to nine percent.

But what happens if a bank really does fall into financial difficulty? Financial institutions themselves are now expected to prepare for such cases in advance, and draw up plans during the good times for how restructuring will be carried out, both in logistical and business terms. These so-called "bank testimonies" are to be created in collaboration with the German financial supervision organisation BaFin, which will set up its own unit for that purpose.

Making banks pay

All this is too little for Germany's political opposition, which is calling for an independent European resolution authority with the right to recapitalise and liquidate banks. Then again, that would require a European liquidation fund that the banks would have to fill themselves, if the SPD and the Greens had their way. "So that the banks themselves and not the taxpayer take on the risk", said SPD financial market expert Manfred Zöllmer.

The German government disagrees. Finance Minister Wolfgang Schäuble, of the CDU, is continuing to argue for a network of national authorities across Europe, to which Zöllmer's response is: "Even in Germany there is no suitable fund capable of taking on the task". The SPD politician thinks the bank levy agreed by the government is much too small. "There's nothing there at all that can contribute to it nationally", he said in the debate.

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