German Government Bank-Separation Plan Premature, BDB Lobby Says

Germany’s commercial banks urged the government against rushing to force large retail banks to spin off their proprietary trading, saying the coalition should wait for outside appraisal of its plans before enacting them in law.

Unless separated, German deposit-taking institutions would be forbidden to engage in proprietary trading, lending and guarantees to hedge funds as well as high-frequency trading above a volume of 100 billion euros ($136 billion), or 20 percent of the deposit-taking institute’s assets certain volume, according to a draft law distributed to lawmakers in Berlin.

There’s no need for “hasty” initiatives by Chancellor Angela Merkel’s government because there is no proof that the division of commercial transactions increases financial-market stability, the BDB banking association said today in an e-mailed statement. All German business lobbies agree that maintaining Germany’s universal banking system is in the interest of growth and employment, it said.

“Before the federal government advances the separation of commercial transactions, it should wait for the results of the impact study for the Liikanen report planned by the European Commission,” BDB managing director Michael Kemmer said in the statement.

Banking legislation is swinging back into focus for German lawmakers as they prepare to contest federal elections in September. Merkel’s Social Democratic challenger, Peer Steinbrueck, has already proposed that German banks split their investment-banking operations from retail units to protect depositors.

Deutsche Bank Lobby

Deutsche Bank AG, a BDB member, is among banks in the EU to have publicly lobbied against proposals by a high-level group, led by Bank of Finland governor Erkki Liikanen, to force large lenders to spin off some trading activities into separately capitalized units.

The commission will present draft bank-structure rules in September in a bid to curb risk and prevent lenders being too-big-to-fail, a spokesman for Michel Barnier, the European Union’s financial services chief, said today by e-mail.

“We generally welcome any measure that makes the financial market safer,” Bjoern Saenger, a lawmaker for Merkel’s Free Democratic Party coalition partner and a member of the lower house finance committee, said in an interview in Berlin. The government draft, “which is not a proposal for a clear-cut separation system, can help achieve that.”

Concerns that Steinbrueck may benefit from hostile sentiment toward the financial industry may have encouraged the Finance Ministry to move quickly to draft the law. The government aims to pass the law in the Bundestag, Germany’s lower house of parliament, before the summer recess. It would then need upper-house approval.

The European Central Bank said Jan. 28 that it’s vital to evaluate the impact of the planned new banking rules across the EU. Differences in the structure of the banking sectors could produce “different consequences in terms of divergent funding costs as well possible unintended consequences, namely on the real economy of member states,” the Frankfurt-based ECB said.

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