German Banks Oppose Finance Minister On Planned Reforms

by Ulrika Lomas, Tax-news.com, Brussels

14 June 2001

New proposals for the modernisation of Germany's financial supervisory regime have been opposed with such vehemence by the European Central Bank, the Bundesbank, and the country's federal states, that many doubt that they will ever become law, at least in their current form.

This has come as a bit of a shock to the German finance minister, Hans Eichel, who threw his personal authority behind the proposals, and harbours hopes of making the country a model for financial market regulation in the European Union. Central to the planned reforms, which were partially inspired by the UK creation of the Financial Services Authority in 1997, is the creation of a single, independent regulatory authority that would take over the supervision of stock markets, banking, and the insurance sector, which is currently undertaken by three seperate agencies.

Mr Eichel believes that a single regulatory body is necessary because the traditional dividing lines between different types of financial service providers, for example banks and insurers, are being blurred by increasing consolidation, as can be seen in the merger which took place between Munich based insurer, Allianz, and Dresdner Bank earlier this year. However, the ECB and the Bundesbank have objected, contending that financial markets cannot be satisfactorily regulated without the involvement of central banks, although the government has insisted that it does not intend to exclude the Bundesbank from banking supervision.

The European Central Bank is concerned that a new regulator might not be quick enough off the mark in the event of an impending crisis in the financial system, due to its relatively narrow focus, and believes that in the age of the Euro an inclusive perspective covering all of the 12 countries which make up the euro-zone is necessary, as the behaviour of large financial organisations has the power to affect capital markets beyond their national frontiers.

Politicians and executives from the regional central banks believe that the move being proposed by Mr Eichel would be an attack on the decentralisation efforts which have been the guiding priciple in Germany's political and economic system since 1949. In April this year, 14 of the 16 states voted against the finance minister, and if the legislation is defeated by a two-thirds majority in the country's second legislative chamber, it could prove very difficult to rescue. However, Mr Eichel can draw some small comfort from the fact that his proposals are at least supported by Germany's commercial banks, who believe that the development of a single regulatory authority would be of benefit to private investors.

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