Merkel Draws Bank Fire in Pre-Election Regulation Splurge

Chancellor Angela Merkel is drawing fire from Germany’s banks for pushing through regulation they say is rushed and meant to appeal to voters more than lenders.

The legislation, bundled into three votes scheduled today and tomorrow in the lower house in Berlin, the Bundestag, includes bills to force banks to segregate proprietary trading starting in 2017 and to anchor Basel III proposals on capital-adequacy into German law.

It was in fact Peer Steinbrueck, Merkel’s first-term finance minister and her Social Democratic challenger in Sept. 22 elections, who first advocated a split of banks, a proposal adopted in watered-down form by Merkel’s government. Hurrying the bills through the Bundestag now, six weeks before lawmakers leave for the summer recess, is a ruse intended to undermine the opposition’s campaign platform, said banks analyst Dirk Becker.

“There’s pure election campaigning and little economic sense in the haste to get the bank separation bill through,” Becker, deputy head of German research at financial advisers Kepler Cheuvreux in Frankfurt, said in a telephone interview. “Germany should wait to legislate after the European Commission knows where it’s going with this plan.”

Germany’s banks say they have been swamped by more than 30 regulation packages since the September 2008 collapse of Lehman Brothers Holdings Inc., pushing up their cost of doing business relative to foreign competitors and making services for clients more expensive.

‘Gold Plates’

Lawmakers are due to debate and vote from about 3:30 p.m. today on a Basel III bill which calls for banks to more than triple reserves for absorbing losses, and on a bill adopting a European Union directive for the supervision of hedge funds and private equity funds. The Basel III bill “gold plates” EU proposals by incorporating steps not required in the directive, Deutsche Kreditwirtschaft, the German bank lobby group, said in a May 6 statement.

Tomorrow, lawmakers will discuss draft legislation for transferring national bank supervision to the European Central Bank and vote on the bank separation bill.

Coalition lawmakers say the plan to push the legislation through parliament may mean it will require amendments after the election. “There’s no fine tuning” in the drafts, Ralph Brinkhaus, a lawmaker from Merkel’s Christian Democratic Union who coordinates finance bills for his party, told reporters in Berlin yesterday.

As many as 12 of Germany’s largest banks, including Deutsche Bank AG, will be required by 2015 to specify how they will hive off proprietary trading from their deposit business, the latest draft of the bank separation bill shows.

Steinbrueck Model

Merkel’s model falls short of calls by Steinbrueck for banks to put their securities in separately capitalized units to protect retail and corporate clients should traders run up losses. That plan, which he announced last year, is similar to measures suggested by ECB governing council member Erkki Liikanen and a plan U.K. regulators are pursuing.

Germany’s banking industry “doesn’t see the necessity for hurrying” the bank separation bill through parliament before other European Union countries, the group that represents the five biggest bank lobbies said April 17.

Deutsche Bank told coalition lawmakers and Finance Minister Wolfgang Schaeuble that it can “live with” the planned legislation since it exited proprietary trading after the 2008 banking crisis, said Birgit Reinemund, chairwoman of the all-party Finance Committee.

“We’re on track to get these bills through the chamber by the summer,” Reinemund, a lawmaker with Merkel’s Free Democratic coalition partner, said in a May 7 telephone interview. “There’s no compelling reason why we shouldn’t.”

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