German Choice for ECB Heralds Shift as Rate Clout Slips

In sending Sabine Lautenschlaeger to the board of the European Central Bank, Germany could be gaining power over the region’s lenders at the expense of its monetary-policy clout.

Lautenschlaeger, the only candidate to succeed Joerg Asmussen after he quit the ECB for the German government, will testify today before European Parliament lawmakers already keen to raise the number of women on the board from zero to one. A fast-tracked procedure could see her shift across Frankfurt to the ECB from her current job as vice president and head of supervision at the Bundesbank by the end of the month.

That would change the tone of Germany’s voice at the ECB, as the 49 year-old’s profile is that of an experienced scrutineer of bank balance sheets, not an economics heavyweight. It means the nation, which has been overridden more than once on interest rates and measures to quell the debt crisis, could instead push its agenda for redesigning Europe’s financial system to prevent a repeat of the turmoil since 2007.

“On monetary policy she’s a blank piece of paper and might not have much weight in forming opinion,” said Holger Sandte, chief European analyst at Nordea Markets in Copenhagen. “Given her background as a lawyer and in banking supervision, that’s not a surprise. There she puts a lot of stress on countries trying to solve problems themselves before turning to European solutions, and in that sense she’s in the German camp.”

Bank Union

As Europe builds a banking union, Germany has fought for nations to retain more control than foreseen in plans presented by the European Commission and backed by the ECB. Finance ministers reached a deal last month on a blueprint to create a single system for handling crisis-hit lenders by acceding to German demands.

Lautenschlaeger, who declined to comment for this article, has backed the German position as a pragmatic way forward. The European Parliament and Greece, which holds the rotating presidency of the European Union, started negotiations on the final version of the rules this month, amid warnings from the assembly that the approach agreed on by national governments is too cumbersome to work.

Lautenschlaeger has almost two decades of experience overseeing German banks. Her first job, after completing legal training and a stint as an intern in Chicago, was at the Federal Banking Supervisory Office, the predecessor of Bafin, in 1995.

Bundesbank Battles

By 2005, she was promoted to a head of department at Bafin, monitoring Germany’s largest lenders, and then to the board. Those roles allowed her to build contacts with peers at the Switzerland-based Basel Committee on Banking Supervision, which brings together regulators from 27 nations and has been tasked with overhauling banking standards.

From June 2011, she served as second-in-command at the Bundesbank under Jens Weidmann, leading its supervision duties. and cementing her reputation.

“I especially value her acumen and assertiveness, as well as her invariable good humor,” said Michael Kemmer, general manager of the Association of German Banks. “She’d be a huge asset to the ECB.”

Lautenschlaeger’s role at the Bundesbank gave her a direct view of the ECB’s decision-making process as she accompanied Weidmann to meetings of the Governing Council. It was there she saw him fight policy battles, including the defeat of his opposition to the OMT plan for unlimited bond purchases.

Bank Failures

Her experience makes her a likely choice for the post of vice-chair of the ECB’s new Supervisory Board, which will oversee euro-area banks from November this year. The job is allocated to a member of the Executive Board.

Even so, the failure of German supervisors during the global financial crisis to spot the trouble brewing at banks including Hypo Real Estate Holding AG and Commerzbank AG could be used against her, said Christian Schulz, senior European economist at Berenberg Bank in London.

“When the going gets tough, people may well try to use that to undermine her,” he said. “A lot of the job will be about putting pressure on governments to recapitalize banks as quickly as possible.”

Banks can expect that Lautenschlaeger will cast a critical eye over how they measure the risks on their own balance sheets, while stopping short of pushing for uniformity. She has previously warned against placing too much reliance on leverage ratios as an indicator of banks’ health, and urged regulators to look more broadly at how lenders manage risks rather than relentlessly focusing on capital.

Gender Shift

She would be only the third woman to serve on the ECB’s six-person board since the institution was founded in 1998. After EU parliamentarians led by Sharon Bowles, the chairwoman of the Economic and Monetary Affairs Committee, held up the appointment of Yves Mersch in 2012, the central bank has made efforts to improve its record on gender equality.

“It is not acceptable that there have only ever been two women” to take the position, said Arlene McCarthy, a U.K. member on the committee. “There is clear evidence that boards who have diverse members are the most effective and successful. Women are less likely to take risks and mixed boards make better decisions.”

The ECB has committed to ensuring that 28 percent of senior management position would be held by women by 2019. France’s Daniele Nouy was appointed in December as the chairwoman of the Supervisory Board.

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