• Germany's news in English

Bank rules will shield consumers from risk

The Local · 6 Feb 2013, 14:40

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

Facebook Twitter Google+ reddit

"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.


The Local (news@thelocal.de)

Facebook Twitter Google+ reddit

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
Outrage over ruling on 'brutal' gang rape of teen girl
The now convicted suspects, sitting in court in Hamburg. Photo: DPA.

A 14-year-old girl was gang-raped and left partially clothed and unconscious in freezing temperatures. Now prosecutors are appealing the sentences for the young men found guilty, most of whom will not set foot in jail.

Dozens of Turkish diplomats apply for asylum in Germany
Demonstrators holding a giant Turkish flag protest against the attempted coup in Istanbul in July. Photo: DPA.

Since the failed putsch attempt in Turkey in July, Germany has received 35 asylum applications from people with Turkish diplomatic passports, the Interior Ministry confirmed on Wednesday.

Hertha Berlin fan club criticised for 'anti-gay banner'
Hertha BSC beat FC Cologne 2-1. Photo: DPA

A 50 metre fan banner apparently mocking the idea of gay adoption has overshadowed Hertha BSC's win in the Bundesliga.

Germany stalls Chinese takeover of tech firm Aixtron
Aixtron headquarters in Herzogenrath. Photo: DPA

The German government on Monday said it had withdrawn approval for a Chinese firm to acquire Aixtron, a supplier to the semiconductor industry, amid growing unease over Chinese investment in German companies.

Politicians call for tough sentences for 'killer clowns'
File photo: DPA.

Now that the so-called 'killer clown' craze has spread from the US to Germany, elected officials are drawing a hard line against such "pranks", with some threatening offenders with jail time of up to a year.

Nearly one in ten Germans are severely disabled
Photo: DPA

New figures reveal that 9.3 percent of the German population last year were considered severely disabled.

The Local List
Germany's top 10 most surreal sites to visit
The Upside-Down House, in Mecklenburg–Western Pomerania. Photo: Olaf Meister / Wikimedia Commons

From upside-down houses on Baltic islands to a fairy-tale castle near the Austrian border, Germany is a treasure trove of the extraordinary.

Bavarian critics back Merkel for Chancellor again
Photo: DPA

The Christian Social Union (CSU) have long delayed backing Angela Merkel as their candidate for Chancellor in next year's general election. But now key leaders are supporting her publicly.

Four taken to hospital after hotel toilet bursts into flames
File photo: DPA.

Four guests at a Nuremberg hotel were taken to hospital due to smoke inhalation early Monday morning after a toilet there burst into flames.

Creepy clown scare spreads to Germany
Two of the clowns were apparently equipped with chainsaws. Photo: Pedro Pardo / AFP file picture

Police said Friday five incidents involving so-called scary clowns had occurred in two north German towns, including one assailant who hit a man with a baseball bat, amid fears that Halloween could spark a rash of similar attacks.

10 things you never knew about socialist East Germany
Sponsored Article
Last chance to vote absentee in the US elections
How Germans fell in love with America's favourite squash
How I ditched London for Berlin and became a published author
12 clever German idioms that'll make you sound like a pro
23 fascinating facts you never knew about Berlin
9 unmissable events to check out in Germany this October
10 things you never knew about German reunification
10 things you're sure to notice after an Oktoberfest visit
Germany's 10 most Instagram-able places
15 pics that prove Germany is absolutely enchanting in autumn
10 German films you have to watch before you die
6 things about Munich that’ll stay with you forever
10 pieces of German slang you'll never learn in class
Ouch! Naked swimmer hospitalized after angler hooks his penis
Six reasons why Berlin is now known as 'the failed city'
15 tell-tale signs you’ll never quite master German
7 American habits that make Germans very, very uncomfortable
Story of a fugitive cow who outwitted police for weeks before capture
Eleven famous Germans with surnames that'll make your sides split
The best ways to get a visa as an American in Germany
jobs available
Toytown Germany
Germany's English-speaking crowd