House of Finance News
The commentaries take into consideration all amendments and supplements by the Lisbon Treaty. Furthermore, they address in detail the problems that result from the current financial crisis and the budgetary crisis of single Member States of the European Union. A particular emphasis has been laid on court rulings concerning the European Monetary Union. This is of special interest for practitioners. The commentary provides an encompassing explanation of all provisions of European Union law in the version of the Lisbon Treaty, which are related to the European Monetary Union.
With contributions from: Florian Becker, Christof Freimuth, Charlotte Gaitanides, Christoph Herrmann, Heinz Herrmann, Stefan Kadelbach, Jörn Axel Kämmerer, Christoph Keller, Julian Langner, Katharina Muscheler-Lorange, Christoph Ohler, Marion Schmidt-Wenzel, Helmut Siekmann, Jochen Sprung, Christine Steven, Christian Waldhoff
Weimer admitted that the banking sector had made mistakes before the financial crisis. They had taken too much risk while having only low capital endowment and thus infected each other during the crisis. Therefore, a better regulation of the banking sector was necessary. At the same time, Weimer warned that too many new regulations would strongly increase the costs for banks. This could especially threaten the existence of smaller banks. Customers would also suffer because banks would pass the costs of regulations on to them. As an example, Weimer pointed to the proposal of the Liikanen-Commission that recommended separating commercial banking and market making from customer business. This would make banking automatically more expensive, he said. According to Weimer, there was also no reason for the introduction of such a separation because the universal banking system had proved robust so far.
Krahnen, who was a member of the Liikanen-Commission, replied that the objective of the Commission was not to decide which banking system was better. It rather tried to find a possibility to reform the financial sector in a way that protects taxpayers if banks get problems. To achieve this, it was important to reduce the dependences between institutes, the systemic risk, and make a bank resolution possible even if banks were linked to each other.
Krahnen also questioned Weimer's reservations. Prices would change through more regulation but the new regulatory situation would affect all banks equally so that a new balance in the banking sector would be regained.
Both discussants rejected the "Liikanen light" proposal of the German government that plans to separate only proprietary trading but not trading on behalf of customers and market making. The separation between proprietary trading and trading on behalf of customers was difficult. When implementing this proposal, disproportionate costs in relation to the increase in stability would arise.
Apart from the separation of commercial banking and customer business, Krahnen suggested the emission of a new type of debt, bail-in debt, to stabilize the financial market and discipline banks. Bail-in debt would always and without warning incur liability when a bank gets in trouble. This kind of debt should not be hold by banks in order to reduce the danger that other banks would become liable as debt holders, when one bank gets into trouble, which could result in a collapse.
For Weimer it didn't make any sense to introduce bail-in debt. Debt holders always had to reckon on being liable during a crisis. But according to Krahnen this was exactly what did not happen during the crisis in 2007 because politicians had been afraid that when banks as debt holders were made liable, this could provoke an even greater crisis.
- Frankfurter Allgemeine Zeitung: "HVB-Chef Weimer warnt vor 'Bombe der Zinswende'"
- Handelsblatt: "Deutschland schießt sich selber ins Knie"
- ntv: "'Ich vernichte Aktionärsvermögen' – HVB-Chef spricht Klartext"
Germany should leave the European Monetary Union or accept Eurobonds. This was the core message of George Soros, Chairman of Soros Fund Management LLC, in Frankfurt on Tuesday. Soros gave a lecture on “How to Save the European Union from the Euro Crisis” following an invitation from the Center for Financial Studies (CFS). The event was part of the CFS Presidential Lecture Series and was visited by around 1200 people as well as numerous journalists. The discussion was moderated by Otmar Issing, President of the CFS.
According to Soros, Germany should take a leading role to combat the crisis and not only do the minimum necessary to save the Euro. The introduction of Eurobonds would reduce the interest burden in countries affected by the crisis and thereby support their economic growth. The Euro could also survive without Germany. If Germany left, the Euro would automatically depreciate and heavily indebted Eurozone countries would regain their competitiveness.
After the lecture, Otmar Issing dissented from Soros referring to the principle of „No taxation without representation“. The consequence of introducing Eurobonds would be that German tax payers would indirectly finance other countries’ debts, he said. This redistribution would lack a transparent vote and therefore democratic legitimacy.
||Zeno Adams, Roland Füss, Reint Gropp||"Spillover Effects among Financial Institutions: How important are Hedge Funds in a Crisis?"|
|Tobias Tröger||"Organizational Choices of Banks and the Effective Supervision of Transnational Financial Institutions"|
|Andreas Hubener, Raimond Maurer,
|"Optimal Portfolio Choice with Annuities and Life Insurance for Retired Couples"|
||Brigitte Haar||"The Path towards Civil Liability of Credit Rating Agencies in Europe under CRA3"|
|Guest Commentary||Florian Rentsch||"The EU must make a Fresh Attempt for the Uniform Regulation of Financial Markets"|
Caroline Atkinson spoke of the partnership between the US and the European Union. She compared their different responses to the financial crisis and their strategies to overcome the economic downturn with fiscal and structural policies. A major challenge after the crisis had been to secure growth and jobs without questioning the mid-term goal of returning to a level of sustainable debt. A striking difference in the approaches has been the use of fiscal stimuli in the US compared to a focus on fiscal consolidation in Europe. In Atkinson's view, fiscal consolidation may have been more damaging to growth in the peripheral countries than had been expected.
Atkinson highlighted the importance of trade between the US and the European Union for their partnership. She discussed potential difficulties for a comprehensive trade agreement. As tariffs between the partners are already low, the gains from a comprehensive trade agreement must come from harmonization of standards and regulations. Atkinson was available for questions from the interested audience after the lecture.
According to Gründl, the current problem arises to a large extent because of the interest rate reductions in the last years. Together with the present period of low interest rates it increases the problems of life insurance companies to generate given long-term warranties through their capital investments.
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Jan Pieter Krahnen, Director of the Center of Excellence SAFE and the Center for Financial Studies, and Michael Kemmer, General Manager and Member of the Board of Directors of the Bundesverband deutscher Banken (Association of German Banks), talked about the future of the universal bank model in the House of Finance on Friday. The event was second in a discussion series on structural reforms in the European banking sector. The series aims to debate the report of the Liikanen Commission of which Jan Krahnen was a member.
Krahnen presented the Liikanen group’s recommendations on the issue of universal banking. The report suggests spinning off all trading activities of major banks in order to separate the financial structures between retail business and trading business. “In our view, both businesses should be financially independent and have to take their respective risks by themselves”, said Krahnen. But contrary to public opinion, the Liikanen Report does not call for a “Trennbankensystem” or a breaking up of universal banks.
Michael Kemmer defended the current universal bank model including the trading business. He expressed the fear that disbanding the traditional structures could throw the European banking system off balance. In addition, he warned about incentive and competition problems that could occur as a consequence of the "cliff-effect", resulting from the fact that the recommendations of the Liikanen commission include a size threshhold. For example, smaller banks could feel encouraged to expand their trading business. During the discussion with the audience, also possible legal problems with existing shareholders and creditors were touched.
The discussants also disagreed on the timing. In the face of the prevailing problems in the European banking sector, Jan Krahnen said, a fast implementation of the Liikanen recommendations was necessary. In contrast, Michael Kemmer pleaded to first wait for the implementation of the regulatory measures which are only now under way, such as "Basel III" and a common banking authority, and to assess afterwards the need for further reforms.
Contrary to their hopes, however, both discussants fear hasty political decisions. Kemmer said he expected a quick political plan already within the next three months. He especially cautioned against separate action by Germany and France. Jan Krahnen was afraid that governments could agree on a “Liikanen light” solution and only spin off banks' proprietary trading. "This would require a lot of energy but be of little advantage", he said.
- Börsen-Zeitung: "Warnung vor ,Liikanen light'"
- Frankfurter Allgemeine Zeitung: "Bankenlobby im Rückzugsgefecht"
- Handelsblatt: "Bankenverband erwartet Trennbanken bereits in drei Monaten"
- Spiegel-Online: "Kritik an Regierung: Verband fürchtet Zerschlagung von Banken"
- Süddeutsche Zeitung: "Forderung nach Trennbanken"