06 November 2012

Reuters: Mid-sized banks more a worry than Deutsche, says BaFin

Medium-sized banks in the midst of big strategic changes are more of a worry for regulators than powerhouses such as Deutsche Bank AG, the head of German financial watchdog BaFin said.

"Crises don't necessarily happen where large financial houses are active because they have solid (control) mechanisms", Elke Koenig told the Frankfurt business journalist club ICFW. "I am more sceptical about banks that suddenly jettison their business model or have no model at all", she said.

The Financial Stability Board, a taskforce for the world's 20 top economies (G20), last week revised its list of "systemically important" banks considered so large and complex they need an extra buffer to absorb potential losses. Deutsche was one of four banks placed in the highest category of potentially risky banks, which will be required to hold an extra 2.5 per cent of common equity as a percentage of risk-weighted assets on top of a 7 per cent minimum being phased in from January.

Koenig said a proposal touted by Finnish central bank chief Erkki Liikanen to split proprietary trading and business with hedge funds from traditional deposit-taking business deserved thorough discussion. The proposal would allow banks to safeguard the advantages of the universal banking model in Europe while still making it easier to wind up banks if necessary, she said. A proposal by the European Parliament that the European Central Bank should focus its supervision efforts on national systemically relevant banks and EU-supported lenders was a good basis for compromise, Koenig said.

Turning to insurance supervision, where she has years of experience as a former chief financial officer of reinsurer Hannover Re, Koenig said she saw January 1 2016 as the earliest realistic start date for new EU risk capital rules known as Solvency II. The European Commission has proposed a January 2015 start date for the rules, aimed at better protecting consumers by making insurers more closely match their capital to the risks on their books, but that deadline appears untenable with many details yet to be finalised. Koenig said Germany may consider introducing some risk controls and other elements of Solvency II ahead of their official introduction.

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