Euro Finance Week

If there's one thing the bankers and regulators gathered at the Euro Finance Week in Frankfurt agree on, it is that reform on a national level alone won't do much to stabilize the financial industry. Instead, they say that loopholes need to be plugged on an international level.

The German-centric economic forum started on Monday, and there has been little doubt among attendees that action should be taken even before the stricter capital requirements of Basel III take effect in 2013. Financial systems should be made more stable and resilient, they say.

German Central Bank President Axel Weber singled out German public-sector banks in his remarks.

"I believe, particularly in this sector, that the Mikado-strategy that's been pursued so far is leading nowhere," Weber said.

Two such banks – BayernLB and WestLB – recently failed in a merger attempt after receiving billions of taxpayer euros during the crisis. The European Commission set a new deadline of February 2011 for WestLB to come up with ideas of how to sustain itself in the long term.

Weber said banks shouldn't be sluggish about making changes, and that they need to be proactive in preparing for coming regulations.

"Changes will be coming to the market structure," he said. "There will be further changes. The profiles of the actors will change, and the type and scope of the banking business will be affected.

"The refinancing structure of the banking system will change. Eventually there will also be less actors. Several will drop out – those which can not meet these new capital requirements."

Bankers have often complained about having to carry the high costs of the new regulations, but Weber said that "a more stable financial system is worth the price."

Risks to international competition

Deutsche Bank CEO Josef Ackermann spoke out against the notion of additional capital requirements for banks in Germany, saying international competition is a concern. What is needed is a method in which "banks which are a burden for the system – and therefore also taxpayers – can be eliminated," he said.

"When you go to Singapore, Hong Kong or Shanghai today, then you experience what's meant by location competition," he said. "And I believe we should always consider here what options we have to make the entire system more robust above all, but without giving up location advantages or tolerating location disadvantages."

Ackermann also defended large banking from skeptics who say banks were granted bailouts specifically because they had become too large to be allowed to fail.

"It is absolutely necessary that we define ourselves beyond national boundaries," he said.

On Monday a panel of economic journalists named Ackermann 'European Banker of the Year' for successfully leading his institution through the financial crisis.

Asian banks 'ready'

According to Wolfgang Kirsch, CEO of DZ Bank, Germany's central cooperative bank, Asian competitors are now primed and ready.

"After the Asian crisis – this rough treatment which, in part, we've been experiencing these days – this was something Asian banks went through," he said. "And today they can happily call out, 'Basel III isn't an issue for us.' Anyone who says Basel III isn't an issue clearly has his own capital and liquidity. And both of those things want to be utilized. So we should keep an eye on that."

The German Central Bank's Weber, however, foresees the need for regulation beyond just the banking system. He said financial groups funneled billions of euros past regulators, agitating the financial crisis.

"We need to cast light into the shadows of the banking system," he said.

Author: Brigitte Scholtes (gps)
Editor: Sam Edmonds