03 July 2013

BdB/Krautscheid: Separating banks is bad for the economy

In an interview with the Tagesspiegel, Andreas Krautscheid from the German Bankenverband accuses Germany of pressing ahead with regulations in the banking sector far too quickly. He talks about the impact of more regulation and job losses in the industry.

Translated from the German

Mr Krautscheid, the EU finance ministers want creditors take a share in the rescue of failing banks in the future. Are they right?

Yes, because if the taxpayer is liable in the future, he must be the very last of all parties involved, i.e. the owners, creditors, depositors of a bank. But it is important that deposits remain untouched up to the deposit insurance limit of €100,000. The new framework being put into place at the moment is a lesson from the financial crisis. It is now assured that if in future a European bank is in trouble, this can be dealt with in an orderly fashion with clearly allocated roles. Any stakeholder should know in advance up to which amount he is liable. Any bank should be able to exit the market without jeopardising financial stability or burdening the taxpayer.

The central banks continue to pump money into the market. Is that a good thing?

With ample liquidity, central banks are partly stepping in where the financial markets have become disfunctional. In addition, low interest rates are supporting the economy. But, as with any medicine, risks and side effects are to be expected. That low interest rates can also be painful is currently felt especially by savers, banks and insurance companies. So the ECB will only provide cheap money to European countries for a limited time to tackle the overdue structural reforms.

The ECB will also be taking over the European banking supervision. Do you think that is right?

It means that a recognised institution with a high reputation will be taking on these tasks. But what we are concerned about is the fact that the function of banking supervision on the one hand, and the mandate to ensure a stable currency on the other hand, might lead to conflicts of interest. Those two issues must be clearly separated. One of the important open points is the clear division of responsibilities between the ECB and the national supervisory authorities. And Germany has rightly insisted on conditions: We can only talk about mutual support for banks when all of them are supervised in Europe according to the same specifications.

Germany presses ahead with regulatory law and with turning the banking sector into a dual system. Does that make sense?

A national unilateral initiative only makes sense if it brings more advantages than disadvantages for the economy. And I do not think highly of the attempts to put an end to the German universal banking system that has proved itself over the years - it has actually never been apparent that a two-tier banking system should be superior. The splitting of banks can have negative consequences for the financial centre of Germany and the export-oriented German economy. Luckily, there is an extended implementation period. 

Do you think that this law might still be modified, after the election?

The topic is of course a big one for the election campaign. It seems that one can easily recognise the good and the evil: the "good" businesses and risks remain with the bank for depositors and SMEs, the "bad" risks are outsourced. The truth, however, is more complex. Are highly collateralised transactions with hedge funds actually riskier than the occasional shaky loan to an SME or a start-up? After the election, we will have to talk sensibly about whether this is really the best solution for the export-orientated German economy.

Are the job cuts at Commerzbank the beginning of a larger wave of layoffs in the banking sector?

That depends very much on the business model of each individual bank. One thing is clear, however: We have a lot of banks in Germany, and the competition among institutions is enormous. They need to cut costs on the one hand and on the other hand invest in new technology. Therefore, we are more likely to see further staff reductions and branch closures.

Full interview (in German)

© BDB - Bundesverband Deutscher Banken