• Germany's news in English
 

Bank rules will shield consumers from risk

Published: 06 Feb 2013 14:40 GMT+01:00

"We know that the exaggerated de-regulation (of the financial markets in the past) was a mistake," Finance Minister Wolfgang Schäuble told a news conference when presenting the draft law.

"We allowed ourselves to be dazzled by technical innovation, new financial products and breathless developments on the financial markets," he said.

But in the wake of the financial crises, Germany had come to the realisation that "no financial market, no financial player and no financial product must be allowed to escape supervision," Schäuble said.

"If you want the chance to make a profit, you must also shoulder the risk," and the taxpayer should not be expected to foot the bill, the minister said.

"We're establishing step by step a new regulatory framework for the financial markets," he said.

Under the new legislation, which Schäuble said he hopes to have passed by parliament by June, large banks will have to separate their different areas of activity in order to protect customers' deposits from riskier areas of operations.

The rule will apply to institutions where high-risk operations such as high-frequency trading or hedge-fund financing make up either 20 percent of the balance sheet value or surpass €100 billion ($135 billion) in value.

The banks concerned will be required to transfer their risky businesses into legally and financially separate units.

Schäuble estimated that between 10 and 12 banks in Germany fulfil these criteria and would therefore be affected.

He declined to name any, but the rules will certainly affect the country's two biggest banks, Deutsche Bank and Commerzbank, as well as regional banking giant Landesbank Baden-Württemberg (LBBW).

The law also requires banks to draw up so-called "wills" or emergency plans for restructuring or winding down once they get into financial difficulty.

High-level managers and executives will face up to five years in jail if they are found guilty of neglecting their risk management duties and allowing their company to run into trouble.

The legislation would directly tackle the shortcomings that make the financial system vulnerable to crisis and also tackle the "lack of responsibility on the part of banks and bankers," Schäuble said.

Banking separation is an idea promoted by the head of the Finnish central bank and European Central Bank governing council member Erkki Liikanen as a measure for reducing risk in the banking sector.

France has also drawn up similar legislation and Britain, too, is mulling an overhaul along similar lines.

But a Europe-wide process would likely take years, so Germany was seeking to provide added impetus by pressing ahead with its own national legislation now, Schäuble argued.

Nevertheless, the banks themselves are fiercely opposed to the changes.

Deutsche Bank has repeatedly slammed the idea as harmful both to the German economy and German companies.

It argues that if it can no longer use deposits to support its activities in investment banking, refinancing costs would automatically rise and that would narrow the financing possibilities of major companies.

The BdB German banking federation agreed.

"The draft legislation will undermine Germany as a financial centre," complained BdB president Andreas Schmitz.

"The measures approved by the cabinet today are folly," he said, slamming them as cheap populist moves by politicians with an eye on the general election this September.

"There is no evidence that separating off trading activities will lead to greater stability on the financial markets," Schmitz argued.

Instead of rushing ahead with its own unilateral national regulatory measures, Germany should wait for new rules to be established at a European level, he said.

AFP/hc

The Local (news@thelocal.de)

Your comments about this article

02:05 February 7, 2013 by US-TommyBoy
I don't need a shield from bank risk, I need a shield from crooked, corrupt bankers.

The LIBOR bunch is a classic example.
18:52 February 12, 2013 by raandy
Tommy Boy I agree the banking institutions are now all about risky investments with high profit potential and BIG bonuses for the top echelon.

What ever happened to the rules that use to prevent this audacious behavior from our financial institutions?
Today's headlines
Sudeten Germans give up 'right to homeland'
Sudeten Germans practising traditional dance at a gathering in 2014. Photo: DPA

Sudeten Germans give up 'right to homeland'

The Sudeten German Homeland Association has given up its claim to the group's former home in parts of the Czech Republic, quieting one of the final echoes of the Second World War. READ  

Minister draws fire over wage transparency plan
Families Minister Manuela Schwesig. Photo: DPA

Minister draws fire over wage transparency plan

Families Minister Manuela Schwesig confirmed on Sunday that she wants a new law allowing women to compare their wages with men doing similar work, provoking angry reactions from employers. READ  

Police wind down Bremen terror response
Heavily-armed police on patrol outside Bremen cathedral. Photo: DPA

Police wind down Bremen terror response

Police in Bremen said that the risk of a terrorist attack had been reduced in the city after they arrested two suspected arms dealers. The city remains under high alert, with special protection for the Jewish community. READ  

Germany's Schäuble softens Greece tone
Photo: DPA

Germany's Schäuble softens Greece tone

German Finance Minister Wolfgang Schäuble said Sunday Greece's new hard-left government needs "a bit of time" but is committed to implementing necessary reforms to resolve its debt crisis. READ  

UK Pegida rally dwarfed by counter-demo
Photo: DPA

UK Pegida rally dwarfed by counter-demo

An estimated 375 people turned out for the Germany-based PEGIDA movement's first demonstration in Britain on Saturday, but were outnumbered by a 2,000-strong crowd of counter-protesters, police said. READ  

Greek PM vows to 'start working hard' after vote
Photo: DPA

Greek PM vows to 'start working hard' after vote

Greek Prime Minister Alexis Tsipras vowed Friday to "start working hard" to implement vital reforms in the stricken eurozone country, after Germany's parliament approved a four month extension to its bailout. READ  

Ukraine: troop deaths 'serious breach' of truce
Photo: DPA

Ukraine: troop deaths 'serious breach' of truce

Ukrainian President Petro Poroshenko declared the killing of three government troops by pro Moscow rebels a "serious breach of the ceasefire", during a telephone call Friday with German Chancellor Angela Merkel, her office said. READ  

Man wins court battle over loud footsteps
Trouble at the top. Photo: DPA

Man wins court battle over loud footsteps

Germany's highest civil court ruled in favour of a man who swapped the carpet in his new apartment for parquet flooring, incurring the wrath of the retired couple who lived below him over his loud footsteps. READ  

Teachers to strike nationwide from Monday
Photo: DPA

Teachers to strike nationwide from Monday

Teachers all over the country are expected to stike starting Monday, German education trade union GEW said, after negotiations with the wage commission of the federal states (TdL) failed to achieve results. READ  

EU court deals blow to US Iraq objector's hopes
Andre Shepherd at the European Court of Justice in June 2014. Photo: DPA

EU court deals blow to US Iraq objector's hopes

American soldier Andre Shepherd, who applied for asylum in Germany as a conscientious objector against the war in Iraq after going AWOL from his unit, saw a judgement by the Court of Justice of the European Union (CJEU) go against him on Thursday. READ  

RECEIVE OUR NEWSLETTER AND ALERTS
Sponsored Article
Expert US tax preparation for Americans in Germany
Politics
Surprise! Germans love feeling like they run the EU
Sponsored Article
Tourist or lifer: what sort of expat are you?
Politics
Anger over plan to show women what men earn
Travel
Munich tram fans bicker over new bell
Features
Kafka: puzzling translators 100 years on
Business & Money
France or Germany: Which country really is the best country to work in?
Photo: Police
Rhineland
Student driver crashes tank into family garden.
Photo: DPA
Politics
There was a notable absence at the Anti-Semitism Commission
National
How Dresden bombing still divides Germany, 70 years on
Sponsored Article
Are you an American expat? How to face FATCA
Photo: DPA
Gallery
Take a cute break with this gallery of baby animals
International
What's keeping UK expats from voting?
Photo: DPA
National
Terror alert at a new high. Should you be worried?
Gallery
The best regional foods TTIP opponents want to protect
Photo: DPA
Features
All you ever needed to know about Pegida
Photo: Shutterstock
Culture
This cosplayer did not think his plan through
National
Europe in statistics - from Spain to Sweden
Gallery
Top 12 German idioms
Culture
10 top tips for partying in Germany
Photo: DPA
Technology
What does the Chancellor see as the future of the internet?
Photo: DPA
Business & Money
JobTalk: All you need to know about working in Germany
National
Share news tips with The Local Germany
Latest news from The Local in Austria

More news from Austria at thelocal.at

Latest news from The Local in Switzerland

More news from Switzerland at thelocal.ch

Latest news from The Local in Denmark

More news from Denmark at thelocal.dk

Latest news from The Local in Spain

More news from Spain at thelocal.es

Latest news from The Local in France

More news from France at thelocal.fr

Latest news from The Local in Italy

More news from Italy at thelocal.it

Latest news from The Local in Norway

More news from Norway at thelocal.no

Latest news from The Local in Sweden

More news from Sweden at thelocal.se

3,382
jobs available
Toytown Germany
Germany's English-speaking crowd