Frankfurt split shows euro tension over banking union
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.