• Germany edition
 
Bank rules will shield consumers from risk
Photo: DPA

Bank rules will shield consumers from risk

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

Don't miss...X
Left Right

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
German of the Week
'Now I can grow cannabis at home'
Günter Weiglein. Photo: DPA

'Now I can grow cannabis at home'

Günter Weiglein is one of three men in Germany who is allowed to grow his own cannabis thanks to a court ruling last week. But he tells The Local he’s not celebrating just yet. READ  

Germany tops penis enlargement table
Do your wurst, doc. Photo: DPA

Germany tops penis enlargement table

Germany is the world’s leader in penis enlargements, with five times as many people in the country undergoing the procedure than anywhere else in the world. Globally, Germany carries out the fourth highest amount of cosmetic surgery operations. READ  

The Local List
The best words in Austrian German
Which one is the Austrian word for tomato? Photo: APA/dpa

The best words in Austrian German

If you’ve lived in Germany, or you learnt Hochdeutsch at school, you may be surprised by some of the language differences between Austria and parts of Germany. READ  

Turks in Germany vote for first time
Voters at Berlin's Olympic Stadium on Thursday. Photo: DPA

Turks in Germany vote for first time

Germany’s large Turkish community headed to polling stations on Thursday to vote for the first time in a Turkish election. The Local visits Berlin’s Olympic Stadium which has been turned into a giant voting booth. READ  

Ice Age lion gets its head back
The lion with the missing half of its head. Photo: Hilde Jensen, Universität Tübingen.

Ice Age lion gets its head back

A 40,000-year-old figurine of a lion has been reunited with its head, more than 80 years after it was first found in a cave in southern Germany, following an extraordinary discovery. READ  

German jobless rate rises in July
Photo: DPA

German jobless rate rises in July

Unemployment in Germany rose in July to 6.6 percent, the Federal Employment Agency said on Thursday, blaming the increase on "seasonal reasons". READ  

Your lottery numbers are 9, 10, 11, 12 and 13
The winning numbers in Wednesday night's lotto. Photo: DPA/Lotto

Your lottery numbers are 9, 10, 11, 12 and 13

Three lucky Germans will take home a six-figure prize after an extremely rare lottery draw. The lucky numbers on Wednesday night were 9, 10, 11, 12, 13 and 37. READ  

Germany denies 'land for gas' deal with Putin
Merkel with Poroshenko and Putin in June. Photo: DPA

Germany denies 'land for gas' deal with Putin

UPDATE: Chancellor Angela Merkel and Russian President Vladimir Putin have been working on a secret peace plan for Ukraine, The Independent newspaper reported on Thursday. The report was later denied by the German government. READ  

Space ship brings special cargo for astronaut
A cargo compartment on the ATV. Photo: ESA

Space ship brings special cargo for astronaut

The last European space freighter blasted off to the International Space Station (ISS) on Wednesday, carrying a special treat for the station’s German astronaut. The launch of the German-built supply ship marks the end of an era. READ  

World Cup victory makes Germans thirsty
Beer sales abroad and during the World Cup were behind the rise. Photo: DPA

World Cup victory makes Germans thirsty

Germany’s World Cup victory was also good news for the country’s brewers who saw a welcome reversal in the long-term trend of draining beer sales. READ  

RECEIVE OUR NEWSLETTER AND ALERTS
Photo: DPA
Gallery
Five reasons to visit Oktoberfest (and five not to)
Photo: DPA
Society
Huge Bavarian crop circle puzzles crowds
Photo: DPA
Analysis & Opinion
Have Your Say: Should Germany legalize cannabis?
Photo: DPA
Education
Germany's students fail to graduate in time
Photo: DPA
Gallery
Hamburg harbour lit up in blue
Business & Money
JobTalk: 'Application process is failing'
Photo: Bundesarchiv/Bild 183-S45825
Culture
Germany puts 700,000 WWI docs online
Photo: DPA
Society
This man wants to give all of us €12,000 a year
Photo: DPA
Education
Top university switches master's courses to English
Travel
Plans unveiled for bike trail along former Iron Curtain
Photo: DPA
Gallery
The Local List: 12 best words in German
Photo: Europeana.de 1914 - 1918
Gallery
A German soldier's life behind WWI lines
Education
Raising the bar for law & business in Germany
Photo: DPA
Business & Money
JobTalk: All you need to know about working in Germany
Photo: DPA
Features
The Local List Archive - Your guide to all things German
National
Share news tips with The Local Germany
Sponsored Article
Bilingual school turning education on its head
Sponsored Article
CurrencyFair: Why it pays when making overseas transfers
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

3,240
jobs available
Toytown Germany
Germany's English-speaking crowd