German bank reform: The axeman cometh

Published on The Economist, Sept. 27, 2012.

CALL it Germany’s Bankenschlacht (“battle for banks”). On one side is Peer Steinbrück, the social-democrat former finance minister, who demands a clear separation of investment-banking from commercial and retail banking. On the other side is almost everyone else, insisting on the virtues of one-stop-shop, universal banking which has served Germany well for decades.  

Mr Steinbrück has been airing his ideas for a while, but on September 25th he presented a detailed paper on how such a split might be done. His aim is to protect taxpayers from the risk of having to pay for the trading mistakes of investment bankers. This means that an institution which trades securities, derivatives and commodities should not depend on a commercial or retail bank for financing, or vice versa.

Mr Steinbrück favours a holding-company structure along the lines suggested by Britain’s Independent Commission on Banking (known as the Vickers Commission) and by a paper written in 2009 for the OECD, a think-tank of mostly rich countries. A non-operating holding company would invest capital in separate subsidiaries, one specialising in investment banking, the other in commercial and retail banking. These subsidiaries would be separately capitalised and funded, with only limited scope for shunting funds or assets between the two. Investors could buy bonds issued by either, or shares in the holding company. They could thus choose whether to have exposure to the volatile investment bank, the steadier commercial and retail bank, or buy shares reflecting the diversified risk of the entire group. It would mean that the commercial and retail bank, with its reliance on insured retail deposits, would not be liable for the gambling debts of investment bankers.

What’s wrong with that? … //

… Meanwhile, Mr Steinbrück has set a hare running. It should do him no harm to put this issue on the election agenda: political opponents will find it hard to out-argue the fast-talking Hamburger on financial reform.
(full text).

Links
:

Peer Steinbrück on en.wikipedia;

SPD Picks a Candidate Steinbrück to Challenge Merkel for Chancellery, on Spiegel Online International, Sept. 28, 2012;

ECONOMY: Steinbrück attacks Merkel’s euro-crisis management, on DW.de, by ccp/tm (AFP, Reuters), Sept. 30, 2012;

Nicht jeder Schweizer möchte nach Singapur auswandern, im Tage3sanzeiger vom 1. Oktober 2012: Josef Ackermann traf gestern in einem Polittalk auf den Alt-68er Daniel Cohn-Bendit. Der Schweizer Banker lieferte dabei überraschende Zugeständnisse an die restriktiven Finanzpläne des Kanzlerkandidaten Peer Steinbrück …

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