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With the entry into force of the Financial Stability Act on 1 January 2013, the Bundesbank was given the task of macro-prudential supervision of the German financial market. This mandate includes analysis of matters relevant to financial stability in order to identify dangers. The legislature thus drew conclusions from the financial crisis that supervision should not just focus on individual players but also on the financial markets as a whole. BaFin continues to be responsible for micro-prudential supervision.
The Financial Stability Act obliges BaFin and the Bundesbank to inform each other of observations, conclusions and assessments necessary to fulfil their respective oversight duties. In an interview, Felix Hufeld, BaFin Chief Executive Director of Insurance Supervision, and Dr Andreas Dombret, Member of the Executive Board of the Deutsche Bundesbank whose responsibilities include financial stability, offered a detailed explanation of what this means for insurance supervision in an interview.
Hufeld: Micro-prudential insurance supervision, i.e. the supervision of individual insurers, insurance groups and pension funds, will remain the sole responsibility of BaFin. The Bundesbank is not involved. That is thus a different situation than in banking supervision.
Dombret: The Financial Stability Act mandates the Bundesbank to help ensure that the financial system remains stable. It is responsible for macro-prudential oversight of all sectors of the financial system – which includes insurers. The act assigns analytical tasks, in particular, to the Bundesbank. It is our job to identify potential dangers and assess constellations that could impact financial stability as a whole.
Dombret: The Financial Stability Act clearly stipulates that we share all observations, conclusions and assessments required to fulfil our respective tasks. The two authorities will mutually benefit from the information and the special expertise that they exchange.
Should insurers fear that the exchange of information will be to their disadvantage?
Dombret: On the contrary. It is in their own best interests that we seek to maintain a stable financial system. The experience of recent years has clearly demonstrated the dangers associated with systemic risks and cross-sector contagion.
Hufeld: I agree. And what Mr Dombret just said of course applies equally to micro-prudential supervision. If the Bundesbank shares valuable macro-prudential insights with us, insurers and their policyholders will be the first to benefit. Another advantage for insurers is that they will not need to establish a separate regular reporting channel to the Bundesbank.
The Financial Stability Board (FSB) recently ranked nine insurers as global systemically important insurers. How important do you think this step is?
Dombret: The publication of this first list of global systemically important insurers marks another step on the path towards a more stable financial system. Banks are not the only entities that can be systemically important – market infrastructures and insurers can be, too. The main factors determining an insurer’s systemic importance are, first and foremost, its interconnectedness within the financial system and the size of its non-traditional and non-insurance business. I therefore fully support the FSB’s recent move. However, it is clear that we still have a considerable way to go. We must now specify and finalise the regulatory con-sequences associated with this ranking. That will not be easy. Just think of the challenge of creating, for the first time, a harmonised international basis for imposing potential capital surcharges in the insurance sector.
Hufeld: It is good that we now know where we stand. Insurers are systemically important in a different way than, say, banks, as they do not trade with one another. Nonetheless, identifying global systemically important insurers is a key step towards maintaining financial stability and protecting policyholders.