03 May 2012

BaFin President, Dr Elke König: "We want to be regarded internationally as a benchmark"

Dr König, your predecessor Jochen Sanio called for supervision with teeth. How do you think BaFin should act towards the financial industry?

BaFin will continue to be a strong and effective supervisory authority that fulfils its functions with a due sense of proportion and deals with the institutions under its supervision on an equal footing. In banking supervision, in which we collaborate very well with the Bundesbank, the banking industry should view both institutions as a dynamic single whole. My objective is for BaFin to be regarded as a benchmark in Europe and in international bodies. After all, Germany is a major financial market. For that reason we want to participate closely in the shaping of European and global supervisory standards. A lot of new things are currently coming together. We should look on that as an opportunity.

What topics are you thinking of in particular, and where do you see the biggest challenges in the months ahead?

First of all would come the three European Supervisory Authorities. We must be careful to adopt the right position in the new European System of Financial Supervisors. At the same time we are faced with the implementation of various regulatory packages such as, for example, Basel III by CRD IV and Solvency II. In addition, in no circumstances we must lose sight of regulation of the shadow banking sector.

Let us just take a closer look at the first item. What does it mean for BaFin to adopt the right position in mutual relations with theEBA, EIOPA and ESMA?

Let us be clear about one thing: there is no alternative to the European System of Financial Supervisors. Europe is a common economic area for which we will in due course need a common rule book. This is also in the interests of the German financial industry. When I say “adopt the right position”, I mean above all participating in the formulation of the European rules for the financial sector. In this connection it is important for us to bring our influence to bear in all ways and to contribute our expertise: for example in the Boards of Supervisors, through working together in the working groups in which the technical standards are developed, by occupying top positions and by providing the best possible advice to the chief political negotiators in the Council. BaFin will assist the work of the ESAs and the ESRB , but will also keep a critical eye on them. The EU Commission will present a first experience report on the activity of the three authorities in early 2014. The ESAs’ founding Regulations might then have to be improved upon here and there.

Especially since everything did not run smoothly at the EBA last year.

I file that under the heading of start-up difficulties. You also have to recognise that the EBA had to take on a huge job from a standing start in 2011. Since the next stress test is not scheduled to take place until 2013, there is now sufficient time for it to take a new direction, for example beyond focusing on the potential need for more capital to analysing how and in what areas banks are reacting to adverse market situations. BaFin will make its views on this issue very clear in the EBA.

You had just mentioned the CRD IV regulation package.

Yes, that is currently one of the most important topics in banking supervision. In the years ahead, the EBA will be having to draft technical standards for all the supervisory requirements and processes – for the Capital Requirements Regulation alone, there will be more than 100 of these. We must ensure that legitimate German interests remain safeguarded here.

What other topics will be keeping banking supervisors particularly busy in the months ahead?

Maybe the question of how we supervise systemically important banks. By now, 29 institutions have been classified as G-SIBs. Special rules will apply to such institutions in future. For example, there will be a capital surcharge. The next thing we will have to sort out is the question of how we deal with the banks that are systemically important at the national level. How are they to be defined? What requirements are to be imposed on them? That is a fascinating discussion, which is still only just beginning, though.

Europe is a common economic area for which we will in due course need a common rule book. This is also in the interests of the German financial industry. When I say “adopt the right position”, I mean above all participating in the formulation of the European rules for the financial sector. In this connection it is important for us to bring our influence to bear in all ways and to contribute our expertise: for example in the Boards of Supervisors, through working together in the working groups in which the technical standards are developed, by occupying top positions and by providing the best possible advice to the chief political negotiators in the Council.

While a lot has been done internationally on the regulation of banks since the outbreak of the financial crisis, the same cannot be claimed regarding the shadow banking sector. You have already mentioned the subject as one of the biggest challenges.

It is very important that we don’t get bogged down on this. So far the various FSB working groups have merely been gathering the facts. In so doing, we are defining quite wonderfully everything there is, in order then to continually identify and add new points. But we urgently need to move from description to action on this subject. Otherwise we’ll be regulating the banking market while the risks are being created next door.

The next step must therefore be to make the connections between regulated banks and shadow banks transparent. We must then regulate these connections if need be. But the regulation of shadow banks themselves is also something we should push ahead with straight away. That’s the only way dangerous arbitrage can be stopped.

Full interview

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