Germany’s top markets regulator said a plan to split banks’ trading and deposit-taking activities would need to be paired with other measures to supervise global financial operations.
Bafin President Elke Koenig told reporters regulation of the banking industry can only be effective if entities that provide so-called shadow banking, including money-market funds, are globally supervised as well.
Koenig’s comments come after the regulator asked Deutsche Bank AG, Germany’s biggest bank, to simulate a split of its consumer banking and trading businesses, according to two people familiar with the matter. A European Union-commissioned group last year called for banks to put trading and deposit-taking activities into separately capitalized units to prevent a repeat of the taxpayer-led bailouts of 2008.
“A structural division alone isn’t enough to rid the world of systemic risks,” Koenig said at the regulator’s annual New Year’s reception yesterday. “We would win little security if we pushed evasive actions into the weakly regulated or unregulated market.”
Koenig also questioned whether efforts to reform the way interest benchmarks such as the London interbank offered rate and Euribor will be successful. Regulators have sought to overhaul the benchmarks after investigations began into whether more than a dozen banks altered their rate submissions to profit from derivative trades or to appear more financially stable.
Rates based on estimates from market participants are vulnerable to manipulation, especially in times of reduced market activities, she said.
“We not only need to work on a general restructuring of the systems, we also need to work on a substitute,” Koenig said.
Systemic risks are also coming from money-market funds which are a major financing source for banks and are part of shadow banking, the Bafin chief said. Some shadow banking actors are “very big global players,” she said without identifying any particular company.
Bafin is looking into whether insurers should be required to develop plans for how they would be restructured in a crisis, Koenig said. In line with the banking industry, only bigger insurers, particularly those operating internationally, should be covered by such a rule, she said.
The plans “are a decidedly useful preventive risk-management instrument that will help contain systematic risks,” the Bafin president said.
The common set of rules for the EU’s insurance industry, called Solvency II, will realistically only start at the beginning of 2017, according to Koenig.
The regulations are designed to make firms across the region allocate the same capital reserves against the risks they take.
Bafin favors early introduction of the parts of the rules that concern insurers’ own risk and solvency assessments, she said. The regulator may call for such a step nationally, should the EU not be able to agree on it, she said.