Reduce over-regulation of financial markets
by Finanzplatz München Initiative
The thicket of financial market regulations constitutes a great encumbrance upon the members of Bavaria's financial community, whose viability is impaired by it. This damages the economy as a whole. The business relationships between the financial community and its clients do require regulation by legal codes and official monitoring, states the Munich Financial Center Initiative (fpmi). The Initiative goes on to point out that Germany's federal government has employed the implementation of EU directives as, however, a vehicle for the creation of further encumbrances. These, in turn, are one of the prime causes of the large-scale over-regulation with which financial services providers and their clients have to contend. These give rise to large-sized costs and negatively affect customer relationships. The adherence to the regulations occupies some 15% of the banking sector's personnel. These staff members could well be pursuing more gainful activities.
The items most urgently requiring resolution are the rules – excessively ambitious – which the German government has tabled to incorporate the provisions of Basel II into Germany's legal code. The same applies to the MaRisk regulations formulated as part of the Basel II process. The current forms of the bank statement process and the solvency statute would also constitute hindrances.
To maintain the European-wide and worldwide viability of Germany's financial community, it is necessary to replace state regulation with rules showing an appreciation of real world practices and giving players more responsibility for the managing of their own affairs. Doing such would free the players to devote themselves to creating new, innovative and growth-producing products and services. That, in turn, would strength the role of the financial services providers as a source of corporate finance, and would thus facilitate the urgently-need increasing of the capital owned by Germany's business community.
The statements made by fpmi's members on "financial market regulations" are to be found below:
Allianz Group: refrain from over-hasty measuresThe regulations governing the operations of capital markets are closely linked, at a variety of levels, with the EU's "Financial Services Action Plan (FSAP)", whose goal is to create an EU-wide single market for financial services. The measures enacted to implement FSAP have already achieved a succession of successes facilitating the achievement of this goal. This implementation and the resulting directives have, however, created a great deal of high-pressure work for the responsible ministries and companies affected. To lessen this pressure and to avoid the over-regulation it could cause, Allianz is calling for the processing of the FSAP-related measures to be completed, and for this to be done in a prudent and, as usual, painstaking way. The effects of the measures should then be assessed. It is only when all this has taken place that further measures can be considered. This should be done without undue haste.
Association of Bavaria's banks: time for a break from regulationThe bad cost-earnings ratios of over 60% manifested by Germany's banks constitute a hindrance to successful competition, and are attributable to large-sized, bureaucracy-caused costs. More than 15% of our staff members occupy themselves with bureaucracy-caused assignments. For this reason, we are calling for a reduction of the burdens placed upon banks by bureaucracy. Routine checks have to be made more time and cost-efficient. Redundant inspections have to be eliminated wherever possible. Estimates of inspection costs should be provided to banks for checking. The EU asks too much of banks, which are currently implementing too many directives. Our banks need, therefore, to take a break from this implementation. It would be also be important for the EU's regulations to confine themselves to points of key importance, and for Germany's government not to add further regulations while implementing them. We should make recommendations and not rules our prime instruments of governing.
EU regulations should be submitted to cost-benefit analyses, and should adhere to the principle of reasonable input and reasonable output. Follow-up costs also have to be taken into account. The protection of investors should be reduced to the point where investors are treated like grown-ups. It should be made easier to provide credits. This can be achieved by reducing the number of financial sector regulations and of BaFin stipulations to the minimum necessary number. Our rules of supervision should not be stricter than those of other EU member countries. MaRisk should be deployed to streamline administrative operations.
Munich Securities Exchange: over-the-counter is an answerThe EU's legislature on capital markets pertains to the "regulated markets" and increases and intensifies the preconditions and follow-up requirements to be satisfied by issuers of bonds on the official and regulated over-the-counter markets. This causes excessive and expensive bureaucracy. Especially hard hit are SMEs. To provide these companies with an attractive and public market for capital, Munich has assigned over-the-counter trading to its M:access segment, which is dedicated to serving such companies. Over-the-counter trading has been substantially less affected by Brussels’s regulations.
Association of Bavaria's savings banks: regulations warp fair competitionMaRisk is yet another component of the densely-woven body of bureaucratic regulations in force in Germany, whose supervisory rules show much less flexibility than those of Austria and other neighbors. This inflexibility constitutes a competitive disadvantage for Bavaria's banks, a fact detailed by the earnings achieved by their non-German counterparts. To do away with this disadvantage, the Association is calling for the configuring of Germany's supervisory statutes along the lines and at the levels of those of neighboring countries. MaRisk should be formulated to be a set of flexibly-applied minimum standards – best practice recommendations – and not hard-and-fast minimum requirements.
A further thrust should be the carrying out of only those cost-intensive special inspections have been occasioned by a specific need. Special inspections carried out on behalf of BaFin and on a routine basis do not accord to the ideal of creating bank supervisory procedures which are modern and which reward risk-taking. The reduction in the number of special inspections carried out for no special reason would reduce the institutes' costs and would provide impetus to decision-makers' utilization of their rooms to maneuver in the formulation and implementation of business policies. The overall effect of these moves would be to facilitate the banks' meeting of their responsibilities to dispense credit to SMEs and other corporations. This, in turn, would constitute an important strengthening of Bavaria's economy.
Another way of reducing bureaucracy would be the pruning of the thicket of such supervisory regulations as those designed to combat money laundering. BaFin's regulations in this area include a comprehensive decree and more than 100 complementary measures. Corresponding to what happened to § 18 KWG, these requirements should be replaced by directives formulated by the banking industry.
Deutsche Bundesbank: stability reportThe fundamentals informing the modification of the system of inspection are derived from the fact that Germany's financial system is highly stable. The Deutsche Bundesbank issued its first dedicated report on this subject on November 10, 2005. Central banks have an innate interest in the countries' financial systems being viable and stable. The report's focus is formed by an analysis of Germany's financial markets and their service providers. The report presented their current situations and the risks they face. The report delves into international developments – and specifically the transformation of the global financial systems – and their potential impact upon Germany's financial stability. The complete stability report is to be found at:
State of Bavaria: deregulation is a major thrust of business policiesThe state government of Bavaria is striving to foster the deregulation in the bank supervisory process. Acting upon an initiative of Bavaria's government, Germany's federal government has increased the absolute minimum value of disclosure laid down in § 18 KWG to €750,000. Acting upon another Bavarian initiative, the Federal Council formulated in April 2005 a resolution designed to reduce the over-regulation prevailing in the supervision of banks (Document 167/05). It calls for a reduction of special inspections conducted according to § 44 KWG, for BaFin's 10% participation, as used to be the case, in the costs of supervision, for the avoidance of new regulation-causing hindrances, and for a refraining from BaFin's circular on § 18 KWG. In a gratifying move, BaFin has by now refrained from issuing a detailed enabling regulation on § 18 KWG. Incorporating the position paper formulated by Bavaria's banking associations and chambers of commerce, Bavaria's economic ministry issued on November 7, 2005 another written statement on the current draft of MaRisk. It took issue with BaFin. The ministry's objective is assuring MaRisk's not yielding any new hindrances in the provision of finance to SMEs, and its not producing any competitive disadvantages for Germany's banks. Bavaria's government is also devoting itself to making sure that Germany's implementation of Basel II is not stricter than those of other EU countries.
Association of Bavaria's cooperative banks and credit unions: deploy MaRisk in a positive wayThe Association expects Germany's new federal government to seriously reduce bureaucracy in the country. To this end, the Association is devoting itself to ensuring that the pending catalogue of minimum requirements for risk management (MaRisk) does not give rise to new, regulation-caused hindrances for and difficulties to banks and their issuing of credits. MaRisk's implementation should instead lead to a reduction of the over-regulation prevailing in the banking sector, and not to the converse. MaRisk should also contain provisions for adaption by small and medium-sized banks.
Also required is a streamlining of the supervision of small and medium-sized banks and credit unions. These have to meet the same, bank supervision-imposed requirements as those of large-sized banks, despite their employing far fewer staff members, their having lower amounts of earnings, and their being exposed to smaller scale – and easier to understand – risks. The Association is also devoting itself to achieving a pruning of the thicket of regulations governing the country's market for securities, and to assuring that legal requirements are configured to meet the needs of banks and of daily business practice.