Actually, one should celebrate the festivals as they fall. The 20th anniversary of an agency could be a given occasion. But the boss waves it off: “It’s not the right time for a larger ceremony with a detailed retrospective,” said Bafin President Mark Branson on Tuesday in Frankfurt. “Now we have to show what we’re made of.” On May 1, 2002, the first integrated German financial supervisory authority was launched – the Bafin wanted to control the insurance sector, banking industry and securities trading under one roof in the future. Expectations were high. “The financial supervisory authority has not always met these expectations,” says the new boss in retrospect.
What happens in an interest rate shock?
Branson, a man of British-Swiss nationality, would like to prescribe more bite for German supervisors. The predecessors always promised that, they often failed, sometimes they noticed the financial crisis too late, sometimes they blundered completely, as at Wirecard, where the authorities preferred to pursue journalists who wanted to clarify than the allegedly fraudulent board of the company.
So what can Branson do? The first nine months of his tenure brought at least more self-PR. The Bafin is making more noise about its sanctions. She often publishes penalties against banks promptly and also names horses and riders. It used to be different, a lot of secrecy, no names of the institutes involved. At that time, the authority was often more concerned about the reputation of the financial institutions than about the public’s interest in information. It wasn’t even about deterrence. That should be different. “Transparency has a preventative effect,” says Branson. “In order to enjoy respect, the authority has to be present,” he continues, pointing out that during his short term in office, the Bafin imposed penalties much more often than in the past.
But on this day of the Bafin annual press conference, the situation in the German financial sector was also discussed. Branson warned of the further consequences of the Ukraine war for the German banks. The financial system is stable and the direct effects of the war and the sanctions against Russia and Belarus are now manageable. “The second and third round effects, which are difficult to assess, could become problematic,” he said. The war slows down economic growth worldwide, disrupts trade relations, drives up the prices of gas, oil and other raw materials and exacerbates the problem of supply shortages.
Mark Branson, previously director of the Swiss Financial Market Authority, now heads the German financial regulator Bafin.
(Photo: Peter Klaunzer/picture alliance/dpa)
“We’re also seeing inflation continue to rise as a result, making rate hikes increasingly likely, including in the eurozone,” Branson said. However, an interest rate hike will only help the banks if it is slow and steady. Then it is easier to earn money in the classic lending business. “But an abrupt and sharp rise in interest rates could get the banks into trouble,” says Branson. In other words, short-term refinancing would suddenly become more expensive, for example because institutions have to pay customers higher interest on their savings deposits, while at the same time interest income rose more slowly due to longer fixed interest rates, for example in the case of real estate loans. That carries risks. Since the beginning of April, the Bafin has been examining the financial institutions under its direct supervision together with the Bundesbank and is playing through “the various interest rate scenarios” in a stress test.
“These are bold actors”
Against the background of the Ukraine war, the financial supervisory authority is also keeping an eye on cyber risks. “The danger that companies in the financial sector will fall victim to cyber attacks or that there will be internal IT security incidents is very large and very present,” said Branson. The war made cyber attacks on the German financial sector more likely. “In extreme cases, such incidents can damage the stability of the financial system,” said the Bafin boss.
Branson also wants to improve anti-money laundering. “Germany is not alone in Europe, the topic has been underestimated over the years,” he said. The financial system plays a very important role in the fight against organized crime. “These are bold players. You can’t sleep there,” Branson said. Only on Friday did it become known that the public prosecutor’s office in Frankfurt, the Federal Criminal Police Office and the BaFin had once again searched the Deutsche Bank. The money house had allegedly submitted money laundering reports too late – it was about payments by a family member of the Syrian ruler Bashar al-Assad.
In life insurance, the Bafin is meanwhile pushing for an upper limit for commissions. The topic was on the political agenda for a long time, but then disappeared again. The last federal government only missed a commission cap on residual debt insurance policies that banks sell to secure loans. The Bafin – and also the European insurance regulator Eiopa – are still a thorn in the side, especially the high costs of fund policies. In March, Bafin published an investigation that found a number of contracts to be bad value for money.
Branson knows both sides of the financial world. He worked at Credit Suisse and UBS, at the latter major bank as CFO of wealth management. He saw how the institute had to pay high fines in the USA and later also in Germany because it had helped customers with tax evasion. In 2010, Branson became head of the Swiss financial regulator Finma. Financial scandals involving Swiss banks kept coming to light during these years. Most recently, the disclosure of the “Suisse Secrets” showed how Credit Suisse served dodgy customers – even at the time when Branson was responsible for financial supervision in Switzerland.
Question to him: What did you learn from the “Suisse Secrets” for your work as Bafin President? “Things are no longer kept secret, the old banking secrecy model has long since been phased out,” Branson replies and demands: “The banks’ customer control systems must be improved.” However, the money houses have been promising this for a long time.