• Germany's news in English
 
app_header_v3

Bank rules will shield consumers from risk

The Local · 6 Feb 2013, 14:40

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.

Story continues below…

"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
Far-right AfD leader injured by flying frozen cake
Jörg Meuthen and a cake. Photo: DPA

The co-leader of the far-right AfD party was attacked with a cake while attending a political event on Monday. But the fact the dessert was frozen made the act "dangerous", according to the politician.

Underwater pensioner hunts boats on famed Bavarian lake
A passenger boat on Lake Starnberg. Photo: DPA

"I love chasing the ships, and what a great feeling it is when they sound the horn!" he gleefully exclaims.

What are Merkel's chances for remaining Chancellor?
Photo: DPA.

She's already held the Chancellery for over a decade, but infighting with political allies as well as a rocky response to her refugee policies may put a damper on Angela Merkel's staying power.

German EU commissioner doubts Brexit will happen
EU Energy Commissioner Günther Oettinger. Photo: EPA.

Germany's EU Commissioner Günther Oettinger raised doubts on Tuesday about whether Britain would leave the bloc, saying he wouldn't bet on "Brexit".

Merkel offers Russia a lifting of sanctions - if it behaves
Angela Merkel. Photo: DPA

Chancellor Angela Merkel said on Monday that she has "the very greatest interest in stopping sanctions" against Russia, Reuters reports.

'Idiot' youth lets regional train drive over him as dare
Photo: DPA

In a stunt police have described as "incomprehensible idiocy," a drunk young man from Munich lay down on the tracks in front of a fast-moving train and let it ride over him.

'Unfriendly' Germans make expat life harder: report
Photo: Pexels.com

Expats in Germany generally find it great for families and starting a career, but were turned off by the language barriers and "unfriendly" Germans upon arrival, according to a new report.

Is German diplomacy getting too chummy with Russia?
Russian President Vladimir Putin meeting German Foreign Minister Frank-Walter Steinmeier. Photo: DPA/AFP Pool.

Critics have been questioning the German Foreign Minister's recent series of comments about working closer with Russia, with some labelling the diplomat a "Russia-sympathizer".

Police investigate after mosque door is bricked shut
The bricked-up door. Photo: Facebook/Netzwerk für Flüchtlinge in Parchim.

Unknown people have bricked up the entrance to a mosque in northeastern Germany and stuck racist flyers to their masonry work.

Vice-Chancellor: TTIP trade deal is dead
Photo: DPA

Vice-Chancellor Sigmar Gabriel said on Sunday that negotiations on a massive trade deal between the European Union and the United States were effectively dead in the water.

Sponsored Article
Why you should attend an international job fair
National
Ouch! Naked swimmer hospitalized after angler hooks his penis
Sponsored Article
Why expats choose international health insurance
National
Six reasons why Berlin is now known as 'the failed city'
National
15 tell-tale signs you’ll never quite master German
Sponsored Article
Why you should attend an international job fair
Culture
7 American habits that make Germans very, very uncomfortable
Sponsored Article
Life in Jordan: 'Undiscovered treasure'
Rhineland
Story of a fugitive cow who outwitted police for weeks before capture
Culture
Eleven famous Germans with surnames that'll make your sides split
Lifestyle
The best ways to get a visa as an American in Germany
Sponsored Article
Why Jordan is the ‘Different’ East
Gallery
Germany's 17 Olympic gold medals in pictures
Sponsored Article
Five things Americans should know about voting abroad
14 facts you never knew about the Brandenburg Gate
Society
Ten times Germans proved they really, really love beer
Sponsored Article
Jordan Pass: your ticket to the experience of a lifetime
Lifestyle
What's on in Germany: events for August 2016
Sponsored Article
Jordan: where history meets adventure
National
Six things you need to know when moving to Germany
Travel
These 10 little-known German towns are a must see
Sponsored Article
6 reasons expats use TransferWise to send money
International
German scientists prove birds can sleep while flying
Sponsored Article
Why you should attend an international job fair
Technology
London v. Berlin: Which is better for startups?
Sponsored Article
Five things Americans should know about voting abroad
Lifestyle
13 mortifying mistakes German learners always make
Sponsored Article
Jordan: where history meets adventure
Travel
Enter if you dare: Berlin's best abandoned haunts
Sponsored Article
6 reasons expats use TransferWise to send money
Lifestyle
10 rookie errors all Brits make when they arrive in Germany
National
How to get German citizenship (or just stay forever)
Technology
Brexit will turn Berlin into 'Europe’s startup capital'
Travel
Six soothing day trips to escape the bustle of Berlin
International
'Germany needs to make UK come to its senses'
Features
Six odd things Germans do in the summer
7,595
jobs available
Toytown Germany
Germany's English-speaking crowd