We are striving to make regulation clearer, more understandable and more efficient – while continuing to safeguard the stability of the banking system, said Bundesbank President Joachim Nagel at the Bundesbank’s 13th regulatory conference in Frankfurt. At the conference, representatives from banks and securities and insurance companies discussed current opportunities and challenges for the financial industry and supervisors in Germany. 

In her video message, European Commissioner Maria Luís Albuquerque, responsible for Financial Services and the Savings and Investments Union, discussed the role of Germany as an economic and financial centre for EU competitiveness. She also described how the Savings and Investments Union could increase the competitiveness of the EU and all Member States. 

Mark Branson, President of the Federal Financial Supervisory Authority (BaFin), explained at the conference the challenges that technological innovations such as quantum computing and artificial intelligence (AI) pose for financial supervision. According to him, supervisors must promote progress and set limits where risks to financial stability exist. 

The conference was initiated by the Deutsche Bundesbank University of Applied Sciences. 

Nagel: Complex regulation leads to side effects

According to the Bundesbank President, the complex regulation of banks in Europe leads to some inefficiencies. Some elements even get in each other’s way, he said, citing the requirements for own funds as an example. Own funds are used by banks to cover losses and to protect creditors in the event of insolvency. Nowadays, European banks are faced with a plethora of parallel own funds requirements, said Nagel, noting that the multitude of capital requirements made it difficult for banks, supervisors and market participants to readily work out which requirement is binding in a given case. Furthermore, there are a number of side effects and interactions that can undermine the actual objectives behind the rules, explained Nagel. “For instance, double counting of own funds towards buffers and parallel minimum requirements reduces the buffers available for use. This could lead to a situation where supervisors release buffers but banks cannot actually use them, noted Nagel.

Nagel: Simplification is feasible

For Nagel, a simplification of banking regulation means a targeted reduction of unnecessary or perhaps even counterproductive complexity. He emphasised that simplification does not mean deregulation. In his speech, he provided thought-provoking impulses to reduce the complexity of own funds regulation: For example, in the capital regime, i.e. the regulation of banks on a going-concern basis, common equity tier 1 capital could be made the only eligible capital. This includes, for example, shares issued by the bank or retained earnings. This would halve the number of own funds requirements. For smaller, low-risk banks, the requirements could, for example, be simplified even more strongly. Instead of complex, risk-weighted requirements, a higher, but uncomplicated leverage ratio would be preferable, said the Bundesbank President. 

Exchange on competitiveness and innovation

At the conference, participants also exchanged views on how to strengthen the competitiveness of the German economy and improve its attractiveness as a financial location.

Private sector speakers provided insights into how digital innovation and artificial intelligence are transforming the financial industry and what opportunities and risks are arising as a result. 

Financial literacy was also a topic of focus, with conference participants discussing approaches to improving it in Germany.