Financial Fiat

Banks Bemoan 'Tsunami' of Regulations

Drones over frankfurt DPA montage Christoph Schmid [M]
German regulators aim to keep a closer eye on banks in the country. 
  • Why it matters

    Why it matters

    If governments and regulators don’t listen to the warnings of bankers about the impact of ever-new regulations on their business, the crucial flow of credit to the real economy may decline.

  • Facts


    • At Handelsblatt’s “Banks in Transition” congress in Frankfurt this week, bankers said the plethora of new rules was harming their business.
    • Bankers said the time has come for regulators to halt the flow of new regulations and examine the impact of the ones already introduced.
    • Policymakers showed some sympathy for the bankers’ demands, conceding that the institutes mustn’t be overstretched.
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This is what a cry for help sounds like: “We’re dealing with a tsunami of regulations.”

Those were the words of Georg Fahrenschon, president of the German Savings Bank Association. They amount to the clearest articulation yet by a German banker of the exasperation being felt at the flood of new government regulations that have been washing over banks since the 2008-2009 financial crisis.

For years, bankers stayed silent, not surprisingly. It was their failings that led to the crisis, so they had little choice but to concede that their industry was in urgent need of reform.

They meekly swallowed the raft of ever more rigorous measures imposed on them by the regulators. For many of them, the measures triggered painful structural change and put the future of entire business divisions in doubt.

But now, it appears, the financial institutions have had enough. At this year’s Handelsblatt congress “Banks in Transition,” taking place through today in the German financial capital Frankfurt, bankers vented their frustration and warned it’s time to stop imposing new rules and to take stock.

“We are rushing towards a conclusion that is not consistent with the best outcome to support global growth,” said Samir Assaf, chief executive of global banking and markets and British bank HSBC.

Banks, for the most part, are well-regulated and well-capitalized, Mr. Assaf argued, the result of a wave of regulations since the 2008 financial crisis. “We need to pause, and take stock of what we have done,” he urged.

Banks are under pressure on a number of fronts. Chronically low interest rates are devouring their profit margins while an army of young financial technology firms are launching an all-out digital assault on their businesses.

As if that weren’t bad enough, the global quakes caused by China’s market turmoil are fanning fears of yet another financial crisis.

The entire sector is clamoring for a respite.

Since the crisis, the German government and the European Union Commission have launched 40 major regulation drives.

“The regulations are a challenge of the first order,” Jürgen Fitschen, the co-chief executive of Deutsche Bank, told the congress. He warned that markets were at risk of drying up because banks weren’t able to maintain enough liquidity as a buffer to cope with the most recent market volatility.

Banks, Mr. Fitschen added, had a duty to warn governments about the impact of the new rules because they understood what that impact was. The banks shouldn’t expose themselves to the accusation “that we didn’t open our mouths in time and warn,” he said.

Bankers are particularly concerned that there’s no really thorough test that analyses the economic impact of all the new rules and whether they’re producing any undesired side effects.

Mr. Fahrenschon said no one in government or in the regulatory authorities, not to mention in business, truly understood the interplay of all the regulations that have come into effect. He said banks had approached the finance ministry with a long list of complaints about various regulatory changes but had not received a satisfactory response.

To be sure, the countless scandals during and in the wake of the financial crisis have eroded the authorities’ confidence in banks. But the bankers’ complaints are gradually being taken seriously.

Monitoring the circulation of money was necessary, Handelsblatt publisher Gabor Steingart told the congress.  “But regulators mustn’t turn into stranglers,” he added.

Even the German government is starting to sympathize. “We must take care with regulations that the pendulum doesn’t swing too far the other way,” said Deputy Finance Minister Jens Spahn. “We mustn’t overstretch the banks.”

But Mr. Spahn also knows that it won’t be easy to explain that to a public that remains skeptical of banks and their role in society since the 2008 financial crisis.

“Regulation must remain predictable for the financial industry,” said Germany’s most senior banking watchdog, Felix Hufeld, president of the federal financial supervisory authority, Bafin. For banks, he added, continuity was key and that also applied “to the real economy and the private customers whose well-being is closely linked to the financial sector’s.”

Mr. Hufeld said he had some sympathy with banks but added the crisis had exposed fundamental regulatory weaknesses.

“Profound changes in the markets necessitate profound regulatory changes,” Mr. Hufeld said, adding that pressure for further rules would likely ease. “I have the hope that the we’ll have more regulatory continuity in future.”


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No one, not even the banks, disputed that after the countless billions of taxpayers’ money spent on rescuing stricken banks in the crisis, the sector had to be restructured to shield it from future conflagrations.

Banks that are so large or so deeply connected that their collapse would trigger a systemic meltdown must no longer be in a position to blackmail governments into bailing them out.

“No bank can be a danger to its own country anymore,” Wolfgang Fink, head of Goldman Sachs in Germany, told the conference, but suggested that regulators could afford to allow banks to become bigger at the European level.

Since the crisis, the German government and the European Union Commission have launched 40 major regulation drives forcing banks to radically increase their capital cushions, keep more liquidity on standby and sign up to a kind of testament ensuring that even the biggest can be safely dismantled if they run aground in a future crisis.

But that’s not all. Requirements imposed on banks have increased across the board, be it transparency, consumer protection or risk management. Meanwhile, some bankers complained that regulators were not doing enough to watch over the kinds of non-banking players that have emerged to pick up some of the slack.

Not all bankers were as pessimistic about the wave of regulation: “I think it’s part of the necessary evolution of the industry,” said Regis Monfront, deputy chief executive of the French bank Credit Agricole.

Mr. Monfront argued that regulators were rightly trying to diversify the risks across the financial industry – by pushing more businesses to get loans through bonds on capital markets rather than taking loans from big banks – a model that has long been more common in the United States, where most companies these days get loans from investors rather than banks.

This too, however, is a hot topic among bankers here. Mr. Assaf of HSBC warned against pushing businesses away from bank loans without having a viable alternative in place. Capital markets, he noted, remain “fragmented” in Europe, and efforts to introduce common regulations across capital markets – a capital markets union – remains in its infancy.

Helene von Roeder, head of Germany, Austria and Central Europe for Swiss bank Credit Suisse, said regulators should consider exactly what kinds of financial players will take the place of banks if they push too hard – more “questionable counterparties” for businesses might entail their own risks for the financial world, she argued.

For governments, it seems the effort to understand exactly what all these regulations mean is now underway. Finance expert Sven Giegold, a member of the European Parliament for Germany’s opposition Greens, said the parliament was taking stock of all the regulatory changes. The European Commission is also preparing a report on the impact of the new rules.


Michael Maisch is the deputy chief of Handelsblatt’s finance desk in Frankfurt. Frank Drost is a Handelsblatt Editor in Berlin, covering financial supervision and banks. Yasmin Osman is a financial editor with Handelsblatt’s banking team in Frankfurt. Christopher Cermak is an editor covering finance for Handelsblatt Global Edition in Berlin. To c ontact the authors:;;;

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