Fourth Bavarian Financial Summit: a look at the new structure of financial markets

Speaking at the Summit, Martin Zeil, the state of Bavaria's minister of economic affairs, pointed out that the new equity regulations forming part of Basel III “will enhance the financial community's ability to withstand crisis, and will reorient its practices towards the long term and towards serving the interests of the global economy as a whole.” In his talk, the minister also demanded that the worldwide implementation of these regulations be undertaken according to a single schedule. “There can't be any repeats of such goings-alone as that of the USA in implementing Basel II, as these would lead to considerable distortions of competition, and would comprise considerable encumbrances for the institutions in Europe. These would arise from the continent's banks having to make considerable and unreciprocated preparatory expenditures,“ stated Zeil.
 

Zeil also voiced the demand that the setting forth of the stipulations established by the Basel Committee be accompanied by a taking into account of unique features of national-level markets. Required is that European-level regulations make provisions for the ‘three pillars’ structure of Germany's banking community. Each of these 'pillars' (groups of banks) has, after all, its own particular business focus, and, accordingly, structure of risks.
 

Andreas Dombret, member of the executive board of Deutsche Bundesbank, stressed that Basel III's stipulations will reduce the odds of a reoccurrence of a banking collapse. He reiterated the call for the on-schedule implementation by all countries of the new equity regulations. Dombret also made the point that further measures have to be undertaken. One of these would be the setting up of a system capable of adequately supervising “too big to fail” financial institutions. One accompanying measure could be the imposing of a supplementary charge on capital. This would offset the advantages arising to the financial institutions from the guarantees of existence possessed de facto by them. “We have to make sure to preclude the creation of ravines on level playing fields,“ emphasized Dombret. It is for this reason that he welcomes the G-20 countries' having taken on the role of being the international-level entity responsible for furthering the regulation of financial markets.
 

“No alternative to debt reduction”
 

In his remarks, Paul Achleitner, member of the executive board of Allianz SE, provided a perspective on the importance of the financial crisis. “To me, the banking crisis joins the fall of the Berlin Wall, the Internet revolution and September 11th as being the events that have shaped the past few decades,” he noted. Achleitner excluded the possibility of any return to pre-crisis conditions. What is now required is de-leveraging – the reduction of the excessive debts accumulated over the past few years. This reduction, however, can be achieved neither in a few months or quarters. Of decisive importance – with this also applying to the industrialized countries – is that the institution of pro-growth policies accompany the deleveraging process.
 

“We always have to keep in mind that deleveraging is a process with a very real impact upon the lives of millions of families. Our response to the problem of our – and this applies to all of us – having lived above our means for many years can not consist of our thrusting a segment of our society back into poverty,” noted Achleitner.
 

Achleitner accordingly called for further structural reforms, ones capable of imparting greater strength to the drivers of growth in Germany. These reforms have to revamp the country’s labor market and its education, health care and private pension system. Also required is a “rational attitude about regulation”. According to Achleitner, it is entirely apparent that the body of regulations applying to Germany’s financial community has to be improved. The community has thus to do everything in its power to proactively facilitate this improvement. “While doing so, we can not restrict our efforts to achieving cosmetic changes. Nor should we restrict ourselves to acting defensively. Rather, we have to recognize the fact – and act accordingly – that the future of capital markets and of our economy as a whole depends on crafting efficacious regulations,” he concluded.
 

Theodor Weimer, Speaker of the Executive Board of HypoVereinsbank, also had admonishments to offer. His subject was the regulatory process. “I am highly troubled by the fact that the attempt to do good is going too far,” he explained. Weimer is also worried by the persistently low level of profitability being achieved by Germany’s banks. “Our economy is one of the best in the world. The maintaining of this position is dependent upon our having a profitable banking system,” he stated. A rebuttal of this point of view of a general lack of profitability came from Uwe Fröhlich, president of the Association of Germany’s Volks and Raiffeisen Banks. Fröhlich voiced his satisfaction with the results being achieved by the country’s credit unions. Fröhlich also articulated his criticism of the EU’s proposals to harmonize deposit insurance regulations. These would worsen the situation of Germany’s consumers.