bank talk

Regulator Warns of Race to the Bottom

  • Why it matters

    Why it matters

    If regulators cannot agree on rules for banks, there is a risk of a race to the bottom with lax regulations potentially failing to protect against possible crisis.

  • Facts

    Facts

    • BaFin keeps watch over the state of German banks, insurance companies and securities trading.
    • From its headquarters in Bonn, the agency is also partly responsible for consumer protection.
    • Regulators at BaFin work closely with the European Central Bank, which now oversees the largest banks in the Eurozone.
  • Audio

    Audio

  • Pdf
Germany, Frankfurt: Raimund Roeseler, Executive Director Banking Supervision of the BaFin
BaFin's top banking regulator, Raimund Röseler, fears a "race to the bottom" if countries cannot agree on a global set of rules for regulation. Source: Picture Alliance

The headquarters of the German Federal Financial Supervisory Authority, known here as BaFin, in Bonn are as plain as you would expect for a government agency. This also goes for the offices of the watchdog’s top banking regulator, Raimund Röseler. There is no expensive art on the walls and no spectacular views from the window. Frankfurt’s bank-dominated skyline is far away, and not just geographically.

But sometimes it isn’t such a bad idea to keep a healthy distance from the banks you are charged with regulating, said Mr. Röseler. He told Handelsblatt he fears for what will happen if countries cannot agree on banking regulations and said the outcome of talks remains completely up in the air.

 

Handelsblatt: Mr. Röseler, after the financial crisis politicians and regulators promised not to intervene in large failing banks and liquidate them instead. Will we see this promise fulfilled?

Raimund Röseler: Well, at least we are on the way to solving the problem. My impression is that the resolution authorities would liquidate banks today that we wouldn’t have dared approach in 2008. We would certainly liquidate an IKB today [the German government bailed out the bank to the tune of €1 billion] – and even banks that are quite a bit larger than that.

But no-one seems prepared to do this with Italy’s Banca Monte dei Paschi. Instead, in their first acid test, the new E.U. liquidity rules are being called into question.

These rules cannot be circumvented. I assume that the European Central Bank and the European Commission will firmly investigate and ensure that the Italian authorities comply with European Union rules …

… if these rules are interpreted very generously…

As I mentioned, the European institutions are responsible for the implementation of the rules. In exceptional cases, there are conditions which allow for a preventive government recapitalization of banks. The bank in question must be solvent. Government funds must not be used to cover foreseeable losses. And even then, owners and secondary creditors have to pay up first.

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