19 October 2019

Financial Times: German banks supervisor warns of new cycle of deregulation

The comments from BaFin President Felix Hufeld come as policymakers fine-tune capital rules against a backdrop of growing concern over Europe’s flagging economy and as banks struggle to cope with negative interest rates.

“I’m of course afraid that we are pushed into a new cycle of downward regulation,” Mr Hufeld told an audience of bankers, policymakers and investors at the Institution of International Finance’s annual meeting in Washington.

“Let's not do that. A little bit of breathing room is fine. (but) it’s detrimental to everybody, both the industry as well as the public good, to do that (deregulate).”

While US banks posted a resilient set of earnings last week, European rivals are being assailed by negative interest rates, including negative yields on parts of their massive sovereign debt portfolios, and slow growth even in traditionally strong economies such as Germany.

“In many more times than not there are attempts from the political world to use or misuse financial regulation to promote all sorts of political purposes unrelated to risk,” Mr Hufeld said, adding that while no one was against supporting small businesses “ignoring financial risk is planting the seeds for the next financial crisis.”

His comments came as Citigroup chairman John Dugan and Société Générale chief executive Frédéric Oudéa argued for a balance between regulation and the banks’ capacity to run their businesses.

“There’s a trade off,” Mr Dugan said. “You can go too far (with regulation), the returns can become quite diminished.”

Mr Oudea said European banks needed “urgent” clarity on the future of the bloc’s banking union, and how refinements to the Base III rules would be implemented.

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