Sewing’s appeal: banks are calling for a common capital market in Europe

VMaybe there is a momentum again now. With the sounding out which parties could form the new federal government, a new spirit is breathed into many European projects. There is hope in financial circles that the banking union and later the capital markets union in Europe will finally pick up speed again. A possible new chancellor, Olaf Scholz, who previously served as finance minister, is associated with a particular hope. After all, it was the SPD politician Scholz who himself presented a new concept some time ago to give the project new impetus. Little has happened since then.

Inken Schönauer

Editor in business, responsible for the financial market.

“I know that this is not necessarily a project with which the European public can be electrified,” said Christian Sewing, CEO of Deutsche Bank, on Wednesday during the press conference on the occasion of the IMF autumn meeting. Sewing is also President of the Association of German Banks and used the opportunity to promote the internal financial market. In the end, everyone would benefit from it: “Companies that can get capital more easily, consumers who can choose from many more financial products, and banks that finally have a large home market and could thus overcome a competitive disadvantage compared to the USA”. There have been minor advances on the way to a capital markets union. “Much, however, is still piecemeal, and there is still no sign of a major breakthrough. But we need that, ”said Sewing.

Banking union is incomplete

The Capital Markets Union, so strongly promoted by Sewing and many other bank representatives, is a goal, but before that comes the completion of the Banking Union. This was set up in response to the financial and euro crisis and consists of three pillars, a joint supervision, a European bank resolution and a joint deposit insurance. While the first two pillars are practically in place, there has been a dispute over deposit insurance for many years. Under Finance Ministers Wolfgang Schäuble (CDU) and Scholz, the federal government has so far refused to standardize saver protection. Above all, the German savings banks and the Volks- and Raiffeisenbanken want to prevent this standardization. The private banks, on the other hand, are open to a European solution.

Many years ago the EU Commission proposed a European deposit reinsurance (Edis). It amounts to supplementing the national saver protection systems with a European fund. From this, the deposits of the banks are to be secured in an emergency. Germany and other “northern” countries only want to support this if the lowering of bank risks is discussed at the same time, such as a risk weighting of government bonds, and if the still very high proportion of bad loans on bank balance sheets continues to fall in some member states. Above all Italy, France and Greece reject this.

Little optimism

Finance Minister Scholz had proposed two years ago that all controversial points on risk reduction and risk pooling should be dealt with in one package. Admittedly, the negotiations have been stuck ever since. The hopes of the banks for a new movement are, on the one hand, directed towards the fact that a new federal government will be more open to a European deposit insurance than the previous black-red coalitions. But that also means that nothing will happen until a new government takes office.

On the other hand, the banks rely on Mario Draghi. As President of the European Central Bank, today’s Italian Prime Minister had repeatedly called on the member states to conclude negotiations on a banking union. As perhaps the only head of government, Draghi is intellectually capable of recognizing the urgency of a banking union, according to the industry. However, as head of government, the Italian has so far shown no willingness to compromise. The Roman resistance to risk weighting government bonds can be traced back to the fact that Italian banks hold a high proportion of domestic government bonds, which, because of the high Italian government debt, must be considered more at risk of default than the securities of other countries.

Sewing also addressed European monetary policy in his speech on Wednesday. “Monetary policy should openly discuss ways out of the current state of emergency,” said the bank president. In particular, negative interest rates, which have weighed heavily on European banks since mid-2014, are unlikely to be a permanent instrument of monetary policy. “We are not very optimistic, however,” said Sewing. With its revised strategy and the forward guidance based on it, the ECB seems to be committed to unchanged key rates for a long time to come. But there are opportunities for the central bank to take action at short notice. The burdens on the banks should be reduced. Sewing’s main focus is on the high level of excess liquidity on which the financial institutions have to pay penalty interest. “We urgently need to counteract this,” he said.

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