Frankfurt split shows euro ten­sion over bank­ing union

The Pak Banker - - Front Page -

FRANKFURT

The ef­fort to es­tab­lish a euro-area bank­ing reg­u­la­tor in Frankfurt is ex­pos­ing deep­en­ing fault lines among the city’s banks as pol­icy mak­ers jos­tle over the shape of the in­dus­try.

Deutsche Bank co-Chief Ex­ec­u­tive Of­fi­cer Juer­gen Fitschen, an ad­vo­cate, is among top ex­ec­u­tives and of­fi­cials meet­ing at the Euro Fi­nance Week con­fer­ence in the cur­rency union’s fi­nan­cial cap­i­tal to­day. At the cen­ter of the de­bate will be how much power the Euro­pean Cen­tral Bank, based in Frankfurt, should be al­lowed to wield. The ar­gu­ment pits Fitschen, who fa­vors cen­tral- ized ECB reg­u­la­tion, against more than 1,500 smaller banks who lend more cash to Europe’s big­gest econ­omy than he does.

The dis­cord over bank­ing union mir­rors a wider dis­pute be­tween politi­cians, reg­u­la­tors and cen­tral banks across the con­ti­nent that has led the Bun­des­bank, also based in Frankfurt, to lock horns with the ECB. At stake is a re­vival of last year’s bank share sell-off, prompted by foot-drag­ging on steps to stem Europe’s debt cri­sis.

“The path to bank­ing union leads through Frankfurt and that’s where the con­flicts will be fo­cused,” Markus Rudolf, a pro­fes­sor of bank­ing and fi­nance at the WHU Otto Beisheim School of Man­age­ment in Val­len­dar, Ger­many, said by phone. “Frankfurt is the site of very dif­fer­ent com­pet­ing opin­ions.” Frankfurt, a city of more than 700,000 peo­ple, has about 74,500 bankers. Dubbed Main­hat­tan by lo­cals be­cause of the sky­scrapers lin­ing the River Main, the birth­place of the euro is home to about 260 banks, of which ap­prox­i­mately 200 are for­eign- owned.

Euro­pean lead­ers in June agreed to hand over­sight and the author­ity to wind down failed banks to the ECB as a pre­con­di­tion for the Euro­pean Sta­bil­ity Mech­a­nism, the 500 bil­lion-euro ($638 bil­lion) per­ma­nent res­cue mech­a­nism, to lend di­rectly to fi­nan­cial in­sti­tu­tions. The pol­icy is de­signed to help break the link be­tween states and lenders.

Ger­man Chan­cel­lor An­gela Merkel has joined the coun­try’s sav­ings banks in op­pos­ing ECB Pres­i­dent Mario Draghi’s plan for a reg­u­la­tor that over­sees all of Europe’s banks. Merkel wants ECB su­per­vi­sion lim­ited to the con­ti­nent’s largest lenders. Last week, the Bun­des­bank ques­tioned the le­gal­ity of the ECB su­per­vis­ing euro-area banks.

“Qual­ity comes be­fore speed and we won’t be rushed by oth­ers,” Ger­man deputy Fi­nance Min­is­ter St­ef­fen Kam­peter said in a speech at the con­fer­ence. “The Ger­man gov­ern­ment and the Bun­des­bank are very close on the bank­ing union.”

Shares of Euro­pean banks slumped last year on con­cern the ex­ces­sive gov­ern­ment debt lev­els would lead to huge losses at banks, the largest in­vestors in the bonds. The Bloomberg Europe Banks and Fi­nan­cial Ser­vices In­dex lost 25 per­cent be­tween July 21 last year and Dec. 7, the day be­fore the ECB an­nounced it would of­fer banks un­lim­ited cash in three-year loans.

While Deutsche Bank’s bal­ance sheet of 2.2 tril­lion eu­ros equals that of Ger­many’s 1,544 sav­ings and co­op­er­a­tive banks com­bined, the lat­ter con­trib­ute 505,600 jobs to the Ger­man econ­omy com­pared with 47,262 at Deutsche Bank’s of­fices in the coun­try, ac­cord­ing to data from com­pany fil­ings and groups rep­re­sent­ing the lenders.

Ger­many, joined by the Nether­lands, Lux­em­bourg and Fin­land, sought to limit the ECB’s planned su­per­vi­sory role to the largest banks, ac­cord­ing to a Nov. 6 doc­u­ment ob­tained by Bloomberg News. The ap­proach con­trasts with Euro­pean Union Fi­nan­cial Ser­vices Com­mis­sioner Michel Barnier’s call for the ECB to be put in charge of all euro-area banks, a plan backed by Ital­ian Prime Min­is­ter Mario Monti and his Span­ish coun­ter­part Mar­i­ano Ra­joy.

Deutsche Bank and other Euro­pean lenders such as So­ci­ete Gen­erale SA (GLE) and BNP Paribas SA (BNP) have a stake in back­ing Europe- wide reg­u­la­tion by the ECB.

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