ECB Supervision

Bankers on a Long Leash

The ECB's Danièle Nouy is giving bankers a longer leash. Source: Handelsblatt
The ECB's Danièle Nouy is giving bankers a longer leash.
  • Why it matters

    Why it matters

    The looser approach could free up bankers’ time to tackle more regualtory problems.

  • Facts

    Facts

    • German regulators clamped down after the Lehman bankruptcy in 2008.
    • The ECB took over direct supervision of some 120 of the euro-zone’s most important banks last November.
    • Banks in countries like Spain and France do not have a separate supervisory board.
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    Audio

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Shortly after the Lehman Brothers bankruptcy helped spark the global financial crisis in 2008, Germany’s financial regulator Bafin put the country’s banks on a short leash.

From then on, high-ranking Bafin officials started regularly taking part in the supervisory board meetings of large German banks. Regulators shouldn’t merely inform themselves “about important strategic decisions by reading documents alone at their desks, but rather at the bank,” said former Bafin President Jochen Sanio at the time.

But now German bank managers can breathe a little easier: The new European banking supervision under the direction of France’s Danièle Nouy breaks with German tradition.

The European Central Bank has decided to take part in supervisory board meetings only sporadically when considered necessary, Handelsblatt has learned from regulatory sources.

“There’s guidelines about it for the director general level,” said a source familiar with the new procedure.

Since the near-collapse of Hypo Real Estate, German financial regulators have followed important lenders particularly closely. Bank watchdogs from Bafin and the Bundesbank have often visited the board meetings of Deutsche Bank and Commerzbank. But that constant supervision is now set to end.

The European Central Bank stressed that contact with bank supervisors is high on its agenda

“The goal is to visit such supervisory meetings less frequently but in a more focused manner,” said the source. “Regulators should go when there is a need to do so.”

The background to the policy switch is the varying approach towards bank supervision in Europe. The frequency with which German regulators visit banks is unusually high in international comparison and isn’t transferrable to other countries. In Spain and France, for example, there is no strict separation between executive and supervisory boards. Instead, there is a joint board of directors.

If the ECB wishes to check up on bank supervisors in a country with this structure, regulators would then also be privy to what the bank’s executive board is doing. But the ECB, which took over direct supervision of some 120 of the euro zone’s most important banks last November, has no business meddling in a bank’s operational management.

“There are countries where regulators never showed up. It was a shock for banks there that suddenly the ECB can show up,” said a bank adviser.

But if European regulators only showed up regularly in Germany, they would not be treating banks equally.

“You want to avoid that kind of unbalanced treatment,” a leading European banker told Handelsblatt.

German banks have certainly noticed that regulators are no longer stopping by as often as they once did. But there’s another reason for the new strategy.

“When the regulators constantly turn up at supervisory board meetings, there’s the danger that the important debates will no longer happen within the board but rather in other circles that form. One doesn’t exactly have to encourage that,” said one inside source.

The sporadic visits don’t mean that regulators are suddenly flying blind. Financial institutes still have to deliver the written protocol to each board meeting and the watchdogs are still present at especially important meetings. Plus, they are turning up more often at other committees, such as ones on risk management, sources at large German banks have reported.

The ECB regulators are also placing more scrutiny on specific board members, making them nervous.

“Supervisory board members are asking us about training and want to know what kind of questions they can expect,” said a management consultant.

The European Central Bank stressed that contact with bank supervisors is high on its agenda. “Members of a regulatory team regularly meet with those persons at the bank in key positions as part of ongoing monitoring,” said an ECB spokeswoman.

Neither the Bundesbank nor Bafin wanted to comment.

Not every official at Bafin is happy about the new strategy. But Mr. Sanio’s urge for total control had been loosened in recent years.

“In the beginning, we always sent very high-ranking people to the meetings. Lately it was almost only junior ones who just wrote everything down,” admitted one bank regulator.

 

Daniel Schäfer and Yasmin Osman cover banks from Frankfurt. To contact them: dschaefer@handelsblatt.com and osman@handelsblatt.com

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