12 November 2013

Wolfgang Schäuble: Taking the necessary action

Schäuble said that the German government places high priority on ensuring that shareholders and creditors bear the main responsibility for the costs incurred in winding up troubled banks.

In the future, we will no longer tolerate "too big to fail". We are making sure that liability is placed where it belongs. Opportunity and risk cannot be kept separate and distinct. In the future, shareholders and creditors — not governments and taxpayers — will be first in line to bear the costs of rescuing or winding up troubled financial institutions.

We have worked together with our partners in Europe and the G20 to create a new regulatory framework for financial markets. By improving supervision and adopting more appropriate capital requirements, we are making the financial system more crisis-resistant. Markets and products have become more transparent. At the G20 summit in St. Petersburg, the German government succeeded in its call to keep up vigilant efforts to ensure the global monitoring and regulation of the shadow banking sector — including hedge funds.

Crucial tasks still lie ahead of us, of course. One of the most important of these tasks is to continue pressing forward with the creation of a European Banking Union. The next crucial joint step we need to take in Europe is to establish a uniform bank resolution regime. Here it is especially important to set the right incentives in order to prevent undesirable developments that could end up costing governments and taxpayers a lot of money. For this reason, the German government places a high priority on ensuring that shareholders and creditors bear the main responsibility for the costs incurred in winding up troubled banks.

Any such bail-ins must be structured in a way that is manageable and predictable for all parties involved. This will allow market participants to prepare themselves as early as possible. A European resolution mechanism must also be designed to ensure that banks are wound up in a timely, effective and efficient manner. We cannot afford legal uncertainty in this area, because unclear legal structures would seriously impede the resolution process in any concrete case.

Despite all the precautions we have taken, we cannot completely rule out the possibility that hubris and excess may once again lead to severe disruptions on financial markets. It is therefore crucial to place liability where it belongs and to ensure that we build a stable Banking Union — and an equally stable resolution mechanism — on a solid foundation. Working successfully towards this goal will be one of our most important tasks during the new legislative period in Germany.

Full statement

© Bundesfinanzministerium