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Wuermeling: Banks still have room for improvement in terms of security

Wuermeling: Banks still have room for improvement in terms of security Interview with Funke Mediengruppe

10.09.2018 | Joachim Wuermeling DE

Interview with Joachim Wuermeling conducted by Beate Kranz.
Translation: Deutsche Bundesbank

Mr. Wuermeling, do you still conduct your banking transactions over the counter – or do you now do everything online?

I use both options. When travelling and for everyday banking transactions, I find online banking very practical and convenient. When it comes to important financial decisions, however, I like to be advised at a branch office.

More and more banks are closing branches. When do you estimate that most financial transactions will be conducted online?

That’s difficult to predict. It’s already the case now that younger people, in particular, like to conduct their financial transactions on-line. But that doesn’t mean that bricks-and-mortar branches are dying out. There are also lots of customers who prefer to do their banking business at a branch office. Many institutions combine the advantages of personal and digital methods of access. As a matter of principle, I regard it as a positive development when the focus is so much on the needs of the customer.

Do you think charging bank customers more and more new fees is appropriate?

That’s a sensitive subject. For one thing, nobody likes accepting new fees – in any walk of life. But services don’t just come out of thin air, but cause costs for those who provide them. Services performed by banks are no exception in that regard.
A lot of people ask me why fees are being introduced at this precise moment. The answer is that, in the past, the banks could offer many services free of charge because they were able to invest customers’ money and make a profit. That is much more difficult when interest rates are low. Banks have to be profitable, however, in order to survive in the long term. Seen in that light, I also believe that moderate fees for properly delivered services are appropriate.

German banks’ importance has diminished considerably since the financial crisis, with none of them any longer occupying a top spot on the international stage. Is Germany’s competitiveness as a banking centre at risk?

It is true that many European banks are not as profitable as, say, the large US banks. Thanks to very strong government interventions, the banks in the US made a quicker recovery from the financial crisis. European banks, on the other hand, found themselves facing the European sovereign debt crisis as well. Some of the banks’ problems are of their own making, however. These problems have to be solved, and strict supervision will play a part in guiding this process.

How healthy are Germany’s banks in reality?

The resilience of banks and savings banks has improved since the financial crisis. They now hold significantly more capital with which they can cushion losses. And they have significantly reduced their leverage. Despite that, banks have no time to rest on their laurels, as they are facing major challenges. Low interests are one of them. Another is the enormous pressure for innovation due to digitalisation.

In view of the currency crisis in a number of emerging market economies, is there a threat of a new banking crisis?

The unrest in some emerging markets is creating uncertainty in the financial markets. We could well see further volatility in this respect. But that doesn’t mean that there’s an immediate threat of turmoil in the German financial system. Germany’s banks have to be able to deal with something like that and be well prepared for it.

Have the banking supervisors got the risks under control?

We have banks that are now structured in a much securer way and are also better in terms of monitoring their risks. Supervisors have played a key role in this positive development. We have tightened regulation worldwide and introduced a Single Supervisory Mechanism as well as an improved resolution mechanism. All these measures have enhanced the system’s stability. There are nevertheless a number of areas where work is still in progress. In the euro area countries that were hit particularly hard by the recession, there are still large stocks of non-performing loans that urgently need to be reduced. At the same time, all banks have to work on adapting their business models to the new, digital realities and lower their costs, which are still high in some cases.

How high is the risk of cyber attacks on banks? Are institutions protecting themselves adequately?

The risk of cyber attacks on financial institutions is high and will continue to increase, the further digitalisation progresses and the more we as consumers demand digital innovations. Of course, the institutions nowadays all possess security systems against cyber attacks, but these have very different levels of sophistication. To put it plainly: there is still room for improvement in many cases.

Do you think the new cryptocurrencies are dangerous?

Cryptocurrencies – or rather, crypto tokens – are predominantly used for speculative purposes and have little to do with official currencies like the euro. Besides that, their overall volume is comparatively small. I therefore do not perceive any risk for the official currency system or for financial stability at present. For investors speculating with crypto tokens, however, it does represent a risk. For that reason, the only people who should indulge in speculation are those who can in fact afford to lose all of their investment.

Their prices show extreme swings. Are the financial institutions that issue crytocurrrencies such as Bitcoin sufficiently regulated and controlled?

Bitcoin and other crypto tokens are, to begin with, no more than a simple set of numbers entered into an ingeniously designed database. That alone does not warrant regulation by supervisors. It becomes a different situation when Bitcoin and the like are traded for euro or another official currency on a stock exchange or if financial institutions themselves are speculating in such investments. That then gives rise to financial risks. Enterprises conducting such operations are therefore already subject to clear rules at present.

What can the Bundesbank do to protect investors against business flops – like in the case of the Swiss startup Envion?

Such initial coin offerings have, so far, generally not been regulated, as they do not represent a risk to financial stability. They do harbour considerable risks for individual investors, however. BaFin, which is responsible in Germany for consumer protection, has therefore already issued warnings – just like the European supervisory bodies and the Bundesbank. If cases like Envion were to become more frequent, the responsible authorities could look into the need for stronger precautionary measures.

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