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Do Basel III and the European CRD IV package really provide for greater stability in the banking world?
Yes, I am absolutely certain of that. The financial crisis clearly revealed banks’ key weaknesses. Capital adequacy in particular was insufficient in some cases both in terms of quantity and quality. There were also very fundamental shortcomings in the areas of liquidity and corporate governance. It is precisely these vitally important areas that Basel III and the CRD IV package address with a view to improving the supervisory tool kit. Institutions now have to remedy their weaknesses.
Let me be quite clear: better regulation alone is not sufficient to achieve a more resilient banking system. It is at least equally important to adjust our supervisory practice. In future, banking supervision will have to analyse and assess business models as well as risk management systems and controls in much greater detail. These qualitative aspects are becoming increasingly important for banking supervision. We are on the right path here, but certainly not yet where we want to be.
What in your view are the biggest achievements of Basel III and CRD IV?
They address the weaknesses I just mentioned. As a banking supervisor I can only welcome the requirement for institutions to hold more own funds in future. It is just as important that the own funds can do what they are supposed to do, should the need arise, which is to cushion the impact of losses. The framework rules therefore focus much more on Core Tier 1 capital.
But I want to emphasise one thing: managing risks responsibly is incumbent above all on the institutions and their controlling bodies. That’s why corporate governance requirements are so important. Supervisory boards in particular will have to do a better job than in the past when it comes to performing their controlling function. We will be watching closely to see whether that actually happens.
And what assessment in your view can be given with regard to the new supervisory provisions?
If the primary aim of the CRD IV package is to harmonise banking supervision throughout the EU, it is only logical that this should also cover the supervisory authorities’ powers to issue measures and sanctions. After all, banking supervision doesn’t just take place in fair weather conditions. Especially at times when the institutions – and sometimes even entire economies – are on the brink, we have to be capable of taking extremely difficult decisions of far-reaching importance within a very short time. And that of course not only at the national level but also in consultation with all relevant European players. For that to work, we have to be in agreement throughout theEU on what tools we need and how we will use them.
Yes, but increasingly there are complaints being heard from the banking industry with regard to the new regulatory framework: it is said to be too complex and also affects the wrong ones, i.e. those banks that did not contribute to the financial crisis.
The CRD IV package is indeed extremely comprehensive in its scope. Less would certainly be more in many areas of the package. I also see potential for adjustments here in the future. And yet: banking supervision is and continues to be a highly complex subject.
It is also true that the new requirements are not only applicable to the banks that contributed to the financial crisis. But there are good reasons to apply the provisions to all institutions. The aim of course is preventing future crises – and they will certainly be different from the last one. There is no doubt that this will place a burden on the institutions. But that is the price we have to pay for a more stable banking sector. And when I think just how much the last crisis cost the taxpayer, that price is not too high.
CRD IV is now taking effect one year later than planned. Is that a problem?
I would certainly have liked to see it adopted on schedule. And yet I prefer a solution that is adopted somewhat later but is more balanced, to a hastily adopted one that we would then have to painstakingly amend afterwards. On the German side we have used the additional time to do our homework. The implementing act is ready which will allow for a swift and relatively smooth introduction.