German Policy Watch
September 20, 2012
Banking Union: Germany on the brakes
On September 12, the European Commission presented its proposals for an EU Banking Union. During the discussion at the informal Ecofin and via subsequent statements it became clear that Germany – as well as a few other countries such as the Netherlands and Finland – hold different views on key elements of the proposal. In addition, coalition partners in the Bundestag are working on a resolution that would further curtail the room for manoeuvre of the government in its negotiations with EU partners.
Specifically, Germany is pushing for the following:
The German position is easily explained by two driving factors: (i) the specific structure of the German banking system and the political clout of savings and cooperative banks; (ii) concerns about the use of German financial resources to support weak banking sectors elsewhere in the euro area.
As regards the former, Germany’s banking sector is far more fragmented than any other in the EU with 1,900, mostly small banks. What is more, non-profit-oriented banks – savings banks, Landesbanken, cooperative banks and public-sector promotional banks – account for roughly 50% of total banking assets and enjoy disproportionate political clout.
Savings banks, other public-sector banks and cooperative banks are exerting massive pressure on German politicians to ensure (i) that they will not be subjected to EU-level supervision and (ii) that their guarantee systems are maintained in their current form and not pooled at the EU level. As regards the former, the savings and cooperative banks use the smokescreen argument that it would be inefficient and impractical to have small regional banks supervised by an EU-level authority – disguising that what they really want is a bifurcated regime of supervision which would leave authority to supervise small banks exclusively in national hands. The real political debate therefore will not be about the organisation of banking supervision (i.e. how much day-to-day work is delegated to national authorities), but about whether the EU-level supervisor has the final authority over all banks (as rightly demanded by both the European Commission and the ECB). The outcome of this is unclear at this stage: while finance minister Schäuble has indicated that a compromise could be possible along the lines of giving the EU-level/ECB the final say, the Bundestag may take a harder stance and press for a bifurcated system.
As regards the issue of financial safeguards, Germany’s stance must be understood as reflecting the fear that Banking Union, rather than being an integral design element of a functioning monetary union, is (yet another) ploy by indebted countries to draw on Germany’s financial resources. This explains why both the government and parliament as well as the banking industry are insisting on decisions that limit the risks of such financial transfers in the context of a Banking Union.
Which impact will Germany’s stance have on the outcome of the debate on Banking Union?
Bernhard Speyer+49 69 910 31735, firstname.lastname@example.org
© Copyright 2013. Deutsche Bank AG, DB Research, D-60262 Frankfurt am Main, Germany. All rights reserved. When quoting please cite “Deutsche Bank Research”.
The above information does not constitute the provision of investment, legal or tax advice. Any views expressed reflect the current views of the author, which do not necessarily correspond to the opinions of Deutsche Bank AG or its affiliates. Opinions expressed may change without notice. Opinions expressed may differ from views set out in other documents, including research, published by Deutsche Bank. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given or the assessments made.
In Germany this information is approved and/or communicated by Deutsche Bank AG Frankfurt, authorised by Bundesanstalt für Finanzdienstleistungsaufsicht. In the United Kingdom this information is approved and/or communicated by Deutsche Bank AG London, a member of the London Stock Exchange regulated by the Financial Services Authority for the conduct of investment business in the UK. This information is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. and in Singapore by Deutsche Bank AG, Singapore Branch. In Japan this information is approved and/or distributed by Deutsche Securities Limited, Tokyo Branch. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product.