This year’s “Banking supervision in dialogue” symposium centred around the competitiveness of Germany’s banking sector, the way forward for banking regulation, and the impact of technological and geopolitical trends. Hosted by Corinna Egerer and Philipp Otto, this industry event in Frankfurt am Main brought together around 800 representatives from the supervisory and banking communities.

Theurer: simplify without jeopardising stability

Bundesbank Executive Board member Michael Theurer used his speech to call for banking regulation to be simplified, but without jeopardising financial stability. Simplicity is the result of maturity, Theurer said, quoting German poet Friedrich Schiller. Making regulation simpler, more proportional and less bureaucratic was a sign of progress, he stressed. 

Theurer’s comments focused in particular on the competitiveness of the German and European banking sectors relative to the United States. He observed that competition in retail and SME (small and medium-sized enterprises) business between German and US banks was limited across most market segments. Only in investment banking and capital markets business did competition have an international dimension. 

Theurer argued that the planned implementation of the Basel III endgame in the United States was no cause for concern at present. Recent Bundesbank analyses had found that the Federal Reserve’s proposals for implementing the revised Basel framework would indeed lead to a reduction in capital requirements for US institutions compared with the status quo. However, because there were limited direct ties between German and US banks, those lower capital requirements in the United States were unlikely to have any noticeable impact on the competitive situation for German institutions. Nor, Theurer continued, were there any indications at the present time that the capital requirements for US global systemically important institutions overall would fall below the level set out in the Basel framework.

Some excess capital could be channelled into investment 

International competitiveness depended not so much on the precise level of certain metrics as on the consistency and credibility of the regulatory framework. There is no reason to lower the regulatory capital requirements in the EU either implicitly or explicitly, Theurer argued. Rather, it was time to review the increasingly complex rules and simplify them where it made sense to do so.

Concluding his remarks, Theurer noted that German banks were holding more than €180 billion in excess capital. At least some of that capital, he stressed, could be channelled specifically into strengthening those banks’ competitive positions, like by investing in forward-looking technologies such as artificial intelligence (AI).

Banks need to strengthen resilience 

Karlheinz Walch, the Bundesbank’s Director General Financial Supervision, used his remarks to highlight the main challenges and priorities for supervisors. He emphasised that the Bundesbank had upgraded its structures and processes, meaning it was now better equipped to respond sooner and more efficiently to new risks. In times of geopolitical tensions and technological upheaval, it was crucial, he argued, for banks to strengthen their resilience and invest specifically in their risk provisioning. Topics such as IT security, climate change and governance were still supervisory priorities. Walch stressed that institutions needed to take a proactive approach, particularly in the face of mounting cyber risks and given the requirements under the Digital Operational Resilience Act (DORA).

From capital requirements to stablecoins

The morning panels focused on the topic of regulatory simplification. The “capital stack” mini-panel saw Nina Babic (Aareal Bank), Cornelia Holthausen (ECB) and Alexander Schulz (Bundesbank) discuss the optimisation of capital requirements and the introduction of a small bank regime.

Nikolas Speer from Bafin held a speech on the small bank regime that saw him underline the scope for strengthening smaller institutions in particular by lightening the regulatory load. Speer then took part in a panel alongside Professor Lars Klöhn (Humboldt-Universität Berlin), Annemarie Nussbaumer (FINMA) and Karolin Schriever (German Savings Banks Association) to discuss the challenges and opportunities that a simplified regulatory framework presented for smaller banks. 

Panels on demographics, skills shortages and AI

The afternoon session was dedicated to the topics “Demographics and skills shortage – will AI close the gap?” and “Stablecoins – new assets, old risks”. Fabian Braesemann (Oxford Internet Institute) used a keynote speech to explain how AI technologies might help offset the skills shortage in the banking sector. He then took part in a panel alongside Sebastian Ahlfeld (Bundesbank) and Hilmar Zettler (Association of German Banks) to discuss ways in which AI could potentially unlock efficiency gains and also lower workloads for skilled labour. It was still too early to gauge how those productivity gains would translate into labour market effects, however. 

The panel on “Stablecoins – new assets, old risks”, meanwhile, brought together Thorsten Beck (Florence School of Banking and Finance), Doris Dietze (Federal Ministry of Finance), Alexandra Hachmeister (Bundesbank), Simon Seiter (AllUnity) and Anja von Rosenstiel (FIN LAW) to illuminate the challenges and opportunities surrounding the growing prevalence of stablecoins. 

The Bundesbank’s “Banking supervision in dialogue” symposium ranks among the key forums for banking and financial supervisory topics in Germany. The Bundesbank organises the symposium every year, and this year’s was the 27th of its kind.