Regulation

Germany’s central bank: “Pendulum swinging towards regulation”

Deutche BundesbankGermany’s Deutsche Bundesbank Deputy President Sabine Lautenschlager said during Euro Finance Week last week that self-regulation of the banking system has failed and that the pendulum is again swinging towards regulation.

Lautenschlager said regulation should follow a three-step approach: identifying risks, detecting legacy problems and rebuilding trust. She said strict risk-sensitive supervision and regulation is necessary and would improve confidence in the banking sector.

Her comments, however, drew a warning from Michael Reinert, a management board member of Volkswagen Financial Services, against overburdening financial institutions by requiring a large amount of information to be submitted.

Bundesbank executive board member Andreas Dombret said at another discussion that while he has “great sympathy” for banks under pressure, the emergency measures adopted during the financial crisis are a burden on taxpayers. Dombret touted the single resolution mechanism, which he said should be introduced by early 2015.

Euro Finance Week participants also discussed ties between banks and governments, pointing to increasing risks as investments in government bonds see favorable growth, which has led to a stronger interdependence between banks and governments.

“Alongside real estate, government bonds are among the largest asset classes of banks,”  Dombret said. “I cannot imagine how an effective stress test can be conducted if the largest asset classes are neglected.”

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