Despite fierce opposition, larger institutions have to prepare for the separation of certain high-risk trading activities from traditional banking business. In berlin, the finance committee of the bundestag approved a law for a separate banking system to shield against risks.
Under the plans, bank and insurance company boards of directors will in future also be liable for fines if they violate an order of the banking supervisory authority. Finally, financial institutions must draw up their own recovery and resolution plans, known as bank wills. The bundestag is expected to make a final decision on the package of laws this friday.
In recent weeks, the banking industry has raised an uproar against the plans. The spin-off of risky business from customer deposits into separate trading companies is associated with very high effort and immense costs, it was criticized. This has also had a negative impact on the "real economy".
There are also problems with delimitation issues. Private banks, savings banks and cooperative banks had spoken out vehemently in favor of retaining the universal banking system preserved in germany.
In essence, banks will no longer be allowed to use their customers’ savings deposits to finance their own risky transactions. Above a certain level, banks must outsource certain speculative parts of proprietary trading and transactions with hedge funds to independent trading companies. On the other hand, banks can continue to operate these businesses on behalf of their customers.
This applies, for example, to transactions where industrial companies want to hedge against exchange rate or price fluctuations. The exceptions also include market making – the constant setting of buying and selling prices by which banks ensure the trading of securities and thus the liquidity of the market. However, the financial supervisory authority bafin should also be able to demand the separation of these activities in individual cases. Contrary to initial plans, banks are given more time to identify transactions.
The plans with which germany is forging ahead in europe do not go as far as the proposals of a commission of experts headed by the finnish central bank chief erkki liikanen for separation banks. About a dozen institutions could be affected, according to the finance ministry.
Economists and the bundesbank had welcomed the law in principle. However, some experts complain that in view of the wording distinguishing between proprietary business and business on behalf of customers, it is to be expected that only a small amount of trading business will actually be separated off. The expected bureaucratic chaos was not countered by the hoped-for advantages of stability. In the case of large institutions, the entire trading business should be separated.
The financial policy spokesman of the CDU/CSU parliamentary group, klaus-peter flosbach, and the responsible rapporteur, ralph brinkhaus (both CDU), spoke of another milestone in the regulation of the financial markets. Customer funds could be better protected from the risks of speculative transactions.