German Bankers Oppose Plans For Big Banks

by Ulrika Lomas, Tax-News.com, Brussels

15 October 2010

The Association of German Banks (Bundesverband deutscher Banken – BdB) has expressed its fierce opposition to plans to increase own capital requirements for large banks.

Speaking on the margins of the recent International Monetary Fund conference in Washington, President of the BdB Andreas Schmitz emphasized that the association categorically rejected any plans to impose additional capital requirements on institutions categorized as systemically important, arguing that the sheer size of a bank simply does not reflect the risk posed to the sector as a whole.

Following the full agreement reached on tougher own capital requirements for all banks laid out in the Basel III agreement, and on the progressive timeframe for implementation of the new regulations, attention has now turned to the idea of imposing additional capital buffers on the world’s largest financial institutes, which, Schmitz explained could affect around 30 of the world’s largest banks.

Under the proposals, an additional own capital requirement of between 2% and 3% would be imposed on top of the 7% requirement already agreed for all banks to enable them to better withstand economic crises. Germany’s Deutsche Bank would be one of the hardest hit by the move.

Schmitz argued, however, that such increased capital requirements for systemically important banks would not have prevented the last crisis, as ailing banks such as Northern Rock or IKB would simply not have been categorized as systemically important. Although own capital requirements act as airbags, they do not prevent an accident, Schmitz continued, calling instead for the introduction of a mechanism that would enable banks to fail and be liquidated without harming the entire industry.

Alluding to Germany’s restructuring law, BdB member Michael Kemmer explained that this could serve as a future model for Europe. BdB has also underlined the need for any plans made by the German government at national level to be thoroughly thought through and to be coordinated within Europe in order to prevent competitive distortion.

G20 leaders are due to endorse the Basel III agreement at a forthcoming meeting in Seoul in November. Implementation of the agreement is to be the responsibility of each individual country.

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