Banks still need strict rules

Head of the banking association Christan Sewing at the Handelsblatt banking summit

Sewing and the President of the Sparkasse, Helmut Schleweis, are calling for the banks to be relieved of regulation.

(Photo: Marc-Steffen Unger for Handelsblatt)

There are actually a lot of points of contention between savings banks and private banks. But when it comes to one issue, there is the most beautiful harmony between the Sparkasse President Helmut Schleweis and the head of the banking association Christan Sewing: Both are calling for relief for the banks in terms of regulation.

At least the rules that were suspended during the pandemic, such as the completion of the stricter capital requirements under the heading Basel IV, should now remain in a drawer once and for all.

Schleweis’s argument: In the pandemic, the banks had proven that they are robust enough to withstand even the most severe upheavals. Sewing complains that domestic banks are at an unfair disadvantage compared to competitors from other countries such as the USA and from other industries that do similar business but are not so strictly regulated.

Sewing and Schleweis are right on two points. Regulation must take regional differences in the global banking landscape into account. Stricter capital requirements must not lead to a disadvantage for European or German banks just because the market structure here looks different than in the USA. And the regulators have to address the issue of shadow banking much more systematically than before.

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But that does not mean that it makes sense to freeze or even reverse bank regulation.

There are two reasons. Yes, it’s true, the banks were not part of the problem during the corona crisis, they were part of the solution. But the institutes only got through the pandemic so well because in the years since the great financial crisis they have massively increased their equity buffers under pressure from the supervisors.

It was only the stricter regulation that made the banks robust. And: The financial institutions also benefited massively from state aid during the Covid crisis, albeit indirectly this time. The billion dollar aid programs of the governments prevented the feared bankruptcy wave, which in turn would have washed a flood of bad loans into the balance sheets of the banks.

After the pandemic, a new phase will begin for the banks in which, for the first time since the financial crisis, they are no longer under general suspicion of being a notorious threat to stability. In order for it to stay that way, supervisors and politicians have to keep pushing the most important regulatory projects forward with a strict hand.

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