German watchdog defends small banks from EU proposals

The European Union’s (EU) prosed changes to banking rules across the eurozone don’t go far enough in lifting the regulatory burden on smaller banks, according to Germany’s financial regulatory authority.

“We have reached a measure of regulation that excessively and unnecessarily burdens smaller banks,” said Felix Hufeld, president of Germany’s Federal Financial Supervisory Authority, aka BaFin. “We should change this, however without sacrificing stability.”

Hufeld noted that the European authorities’ proposed changes would go some way in removing the burden from smaller lenders, but insisted “the proposal from Brussels doesn’t go nearly far enough. We need a differentiated approach.”

Last November, the European Commission (EC), the EU’s executive arm, proposed legislative changes designed to limit the regulatory burden for the region’s smaller financial institutes. These were in response to claims by smaller banks that they are being unfairly penalised by regulations that aim to curb the excesses that resulted in the 2008 global financial crisis.

Taking up their cause, Hufeld suggested that while Eu authorities should abide by the maxim of “the same rules for all” they should also should insert the proviso “for all who are the same.”

He reiterated a longstanding complaint that low interest rates across the eurozone are harming Germany’ banks. The longer the low interest period lasted “the more it will damage the already weak earnings position of German banks, especially those houses whose main source of income is interest margin.”

While Germany is home to major international lenders such as Commerzbank and Deutsche Bank, the country also has hundreds of smaller savings and cooperative banks. These dominate the market for retail savings accounts and are supervised by BaFin.

Hufeld also said this week that he welcomes Chinese investment in the German banking sector, following the recent revelation that Chinese conglomerate HNA has become the biggest single investor in Deutsche Bank with a 9.9% stake.

The investment was a vote of confidence in Germany’s banking sector, he added. “It is basically a positive story that capital finds it interesting to invest in German banks and of course [that includes] foreign capital and Chinese capital. BaFin has no blacklist of which countries can in principle invest here.”

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