The EU Commission is currently working on a stricter law for the banking sector. It is about the lessons of the 2008 financial crisis, when politicians and experts alike were shocked by the vulnerability of the banking sector. But it was not until 2017 that the experts in the Basel Committee were able to agree on stricter rules. This set of regulations, dubbed “Basel III”, now has to be put into law.
Only: the experts’ distrust that EU politicians could collapse under pressure from the banking lobby must be great. There is no other way of explaining that 25 high-ranking central bankers and banking supervisors open one letter to the responsible EU Commissioner Mairead McGuinness and the Director General John Berrigan. In it they urge “a complete, timely and consistent implementation of the Basel III framework in the EU in all aspects”, namely “both the wording and the intention of the globally agreed framework”. Among the signatories are Stefan Ingves, head of the Swedish Reichsbank, who led the negotiations in the Basel Committee on Banking Supervision at the time, and Bundesbank President Jens Weidmann. Another head of the German authorities was missing: Mark Branson, the new President of the Bafin Financial Supervisory Authority, refused to sign.
Branson’s omission is astonishing. In Switzerland, the then head of the Swiss financial supervisory authority still stood out as an advocate of high capital ratios for banks. And now the U-turn? The Bafin is subordinate to the Federal Ministry of Finance of Olaf Scholz (SPD). the Stock exchanges newspaper reported on Friday that Branson apparently refused to sign the strict appeal after consulting the employer. Have the German banking lobbyists succeeded in the ministry? The industry has long been complaining about the new rules, apparently with success: they are advocating “complete and timely implementation of the Basel III standards”, according to the Federal Ministry of Finance, but with the expectation that “the capital requirements will not increase significantly overall “. So politicians want to readjust.
At the EU level, Germany, together with France, Denmark and Luxembourg, had long been open to the relief demanded by banks. But should an independent Mark Branson care? Actually, the Bafin should become more independent of politics after the debacle over Wirecard. On request, the Bafin stated that it was “clear about the decisions taken on Basel III”. But why didn’t Branson sign the open letter demanding just that?
The expectations of Branson are high. He should give his troops “more bite”
Branson, who speaks with a British-Swiss-German accent, followed the hapless Felix Hufeld in the summer, who had cut a very bad figure in the Wirecard affair. In Zurich, Branson previously headed the Swiss financial supervisory authority Finma for six years. Branson also knows the banking world, he worked in leading positions at the major Swiss bank UBS. You can still find them on the Internet today recording a Senate Investigation Committee meeting, with him as a witness. It was September 4, 2009, and UBS had to justify itself for offering US citizens tax loopholes for many years. At that time, UBS also assisted German tax evaders by keeping appropriate accounts. The Bochum district court imposed a fine of 300 million euros in this case in 2014.
So now the jump to the Bafin: The expectations of Branson are high. He should give his troops “more bite”, according to them Advancement by Federal Minister of Finance Scholz. But “bite” in the enforcement of stricter rules is probably less in demand.
This is about an important issue, namely how much equity the banks have to keep in order to offset losses so that they do not have to be bailed out by taxpayers in a severe crisis. The question first became virulent in 1974 with the bankruptcy of the Herstatt Bank. That is why the Basel Committee was founded at that time, which subsequently developed the Basel I, II and finally III regulations. In the past 50 years, the banking sector has actually lamented every time it tightened, saying that if it were to be implemented, lending would have to be stopped, so to speak. That was of course always shamelessly exaggerated. Above all in Germany there has been an oversupply of credit in recent years.
Nevertheless, the banks always complain: If they have to keep more equity, they can no longer provide the economy with credit. “Here a typical specter is conjured up, with which we are supposed to be led to believe that we have to choose between economic growth and financial stability, but that we cannot have both. Who would want to talk about regulation that costs growth and thus prosperity for everyone?” the economists Martin Hellwig and Anat Admati in their book: “The banker’s new clothes”.
With the implementation of Basel III, the capital requirements for banks are likely to increase significantly. That is why transitional periods of years also apply. The EU Commission’s legislative proposal is expected at the end of October. In view of the political situation, France’s central bank governor François Villeroy de Galhau has also drawn attention to himself: He has also left the phalanx of signatories, but at the same time acts as chair of the steering committee (GHOS) of the Basel Committee on Banking Supervision, which drafted Basel III . As recently as last year, he had stated that the GHOS members had unanimously confirmed that all aspects of Basel III would be implemented completely, promptly and consistently.