Schleweis: “Financial market regulation needs to be focused more precisely on high-risk institutions”

At the autumn meetings of the International Monetary Fund (IMF) and the World Bank in Nusa Dua (Bali/Indonesia), Helmut Schleweis, President of the German Savings Banks Association (DSGV), advocated greater differentiation and proportionality in financial market regulation. While it was understandable that the IMF made a case for not watering down the financial market rules, the post-crisis measures adopted by the G20, the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision (BCBS) had been designed for internationally operating big banks, these measures had also impacted locally based banks focusing on the real economy business.

“A great deal of the regulation introduced in the aftermath of the financial crisis is not suitable for the low-risk business model of Germany’s Savings Banks and co-operative banks. These regulatory measures impose an excessive burden on regionally operating credit institutions, which increasingly leads to a situation where smaller, commercially sound credit institutions are obliged to merge to form larger entities, simply in order to be able to cope with the rising tide of regulation. This cannot be the right conclusion to be drawn from the financial market crisis”, said Schleweis.

Since Basel III had been finalised nearly one year ago, it was now time to consolidate the measures adopted, to allow them to take effect, and to remedy any inconsistencies that had been identified. “Good financial market regulation will have to remain effective in the areas for which it was originally designed. However, it needs to be fine-tuned in areas where the wrong players were impacted. In our view, this needs to be a key conclusion ten years after the financial market crisis”, said Schleweis.

What was necessary, however, was for financial market regulation to focus more attention on non-banks and near-banks. In this area, Schleweis said, there were still regulatory deficits compared with the treatment of banks. While this had been clearly stated by the IMF, hardly any progress had been achieved to date.