Tuesday

19th Jun 2018

Interview

Euro crisis 'not solved,' German bank supervisor says

  • The ECB's cheap loans to banks are an 'addictive medicine' (Photo: Wolfgang Staudt)

Cheap loans from the European Central Bank (ECB) might have calmed the euro crisis, but the fundamental problems are still there: governments have too much debt and no strategy to get out of it, Raimund Roeseler, executive director for banking supervision in Germany's Federal Financial Supervisory Authority (BaFin), has said.

"The sovereign debt crisis is certainly not solved. The ECB pumped more money into the system, but that doesn't make states automatically more solvent," Roeseler told EUobserver in an interview in his office in Bonn, the former German capital.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... our join as a group

  • Raimund Roeseler is in charge of banking supervision in Germany (Photo: Kai Hartmann Photography / BaFin)

The €1-trillion-worth of cheap loans handed out by the ECB last year created "a lot of liquidity" on the banking market, but banks still prefer to park their money overnight in the ECB rather than lend it to each other due to lingering mistrust, he noted.

"The problem is not so much with the banks, but with the states. There are still concerns about the solvency of states and what will happen if a state gets in trouble," Roeseler said.

"The banks' situation is correlated: German banks having bought German bonds are in a more fortunate situation than banks from some other states. Solving the sovereign problem is the number one priority. But my concern is that all this liquidity might relieve the pressure on governments to do so," he added.

One potential risk of the extra liquidity could be a new financial bubble, he warned:

"An even greater risk is that there is still no exit strategy, about how to extract all this extra liquidity," he said.

"The ECB's cheap loans programme was a medicine that helped the patient to recover. But it also creates addiction. We need a therapy that cures the addiction without killing the patient," he added.

EU bank supervisor is 'second-best' option

Established in 2002, BaFin employs more than 2,000 people and deals not just with banking supervision, but also with insurance companies and financial services.

It is currently giving "technical input" to "relevant working groups" on the new eurozone banking supervisor to be hosted by the ECB.

Roeseler said it would have been better if the supervisor had been given powers over other financial sectors.

"It is certainly a second best solution to have a banking-only supervision at eurozone level, without including insurance and securities the way BaFin does," he said.

He gave the example that if an insurance supervisor had given solo advice to insurance firms to reduce their bank exposure during the 2008 banking crisis, the banking sector would have been hit even worse.

"It's an important lesson: What we do in the banking supervisory authority has consequences on the other supervisory sectors and the other way around," he noted.

BaFin's powers in Germany go as far as ordering a bank to fire a top manager, something the upcoming eurozone supervisor should also be able to do, Roeseler noted.

He said the EU supervisor will above all need competent staff who are "able to understand the banks' business models."

He added that even if regulators' salaries are not are not as high as those in the banks they supervise, many former investment bankers want to switch to "the good side."

He noted that even the good guys need internal controls, however.

He recalled an incident from the young days of BaFin when the head of the IT office was convicted of embezzling €4 million through fake invoices.

"We learned a lot from the fraud case, which happened in BaFin's very early days. We have a lot more internal controls now. But this can happen in any company, when someone has his mind set on defrauding," Roeseler said.

Libor should be scrapped

Meanwhile, BaFin is currently probing Deutsche Bank for its alleged involvement in the so-called Libor affair, where a handful of traders from global banks rigged the British interbank lending rate used as a benchmark for at least $360 trillion worth of financial products.

"Banks have completely underestimated the incredible greed of the people involved, there were too few control mechanisms. In retrospect, it is not very surprising such interest rate manipulations took place," Roeseler said.

"I think the Libor system cannot survive in this formula, based on voluntarily reported interest rates which are not being negotiated. Maybe it should be scrapped, not reformed. If I was one of the 12 bankers having to volunteer in reporting how bad the real situation is, I might not have an incentive to do so," he added.

Euribor, the key interest rate for eurozone banks, is based on a similar system to Libor.

But as there are over 40 banks involved, "so it was more difficult to rig the rate," Roeseler said.

Instead of Libor/Euribor, the German supervisor would prefer a different model, based on bonds with various maturities. But that is also a matter for politicians to decide.

EU summit lays out next steps for banking union

EU leaders have agreed to take further steps towards banking union including the legal minefield of how to wind up ailing banks and make sure the tax payer does not foot the bill.

Greek bailout exit takes shape

At a meeting next week, eurozone finance ministers and the IMF are expected to agree on new cash, debt relief measures, and a monitoring mechanism to ensure that Greece can live without international aid for the first time since 2010.

Analysis

Beyond US dispute, EU still aiming at China

On the day it outlined its reaction to US tariffs on steel and aluminium, the EU commission also launched a case against China on property rights - an issue on which EU and US are working hand-in-hand.

Opinion

Eurozone needs institutional reform

Both the examples of Greece and Italy test the limits of a system with inherent weaknesses that feeds internal gaps, strengthens deficits and debts in the European South, and surpluses in the European North respectively.

Opinion

Europe could lose out in North Korean bonanza

South Korean businesses including Hyundai and Samsung are already scoping investment opportunities. Will North Korea become a 'new Vietnam' opportunity - or more like Myanmar, where slow Brussels policy-making meant EU exporters lost out.

News in Brief

  1. Report: Audi CEO arrested over Dieselgate
  2. EU-Australia trade talks kick off in Brussels next month
  3. France and Germany moving closer to eurozone reform
  4. Merkel to meet Conte to find migration compromise
  5. Seehofer gives Merkel time to strike EU migration deal
  6. Schroeder and Sarkozy appear with Putin at World Cup
  7. Tennis champ and 'EU diplomat' claims immunity
  8. Italy threatens to ditch EU-Canada free trade deal

Stakeholders' Highlights

  1. Macedonian Human Rights MovementMHRMI Launches Lawsuits Against Individuals and Countries Involved in Changing Macedonia's Name
  2. IPHRCivil society asks PACE to appoint Rapporteur to probe issue of political prisoners in Azerbaijan
  3. ACCASocial Mobility – How Can We Increase Opportunities Through Training and Education?
  4. Nordic Council of MinistersEnergy Solutions for a Greener Tomorrow
  5. UNICEFWhat Kind of Europe Do Children Want? Unicef & Eurochild Launch Survey on the Europe Kids Want
  6. Nordic Council of MinistersNordic Countries Take a Stand for Climate-Smart Energy Solutions
  7. Nordic Council of MinistersNordics Could Be First Carbon-Negative Region in World
  8. European Federation of Allergy and AirwaysLife Is Possible for Patients with Severe Asthma
  9. PKEE - Polish Energy AssociationCommon-Sense Approach Needed for EU Energy Reform
  10. Nordic Council of MinistersNordic Region to Lead in Developing and Rolling Out 5G Network
  11. Mission of China to the EUChina-EU Economic and Trade Relations Enjoy a Bright Future
  12. ACCAEmpowering Businesses to Engage with Sustainable Finance and the SDGs

Latest News

  1. Orban to EPP: turn 'Christian democratic' or face challenge
  2. Is EU retail sector equipped for 21st century?
  3. Tear gas bodes ill for Macedonia name deal
  4. EU asylum claims drop, Germany registers most
  5. EU summit: migrants get a 'vote' too
  6. Basque threat of 'second front' for independence
  7. Progressive regulation needed now for 21st century finance
  8. Greece and Merkel's fate top This WEEK

Stakeholders' Highlights

  1. Nordic Council of MinistersCooperation in Nordic Electricity Market Considered World Class Model
  2. FIFAGreen Stadiums at the 2018 Fifa World Cup
  3. Mission of China to the EUChina and EU Work Together to Promote Sustainable Development
  4. Counter BalanceEuropean Ombudsman Requests More Lending Transparency from European Investment Bank
  5. FIFARecycling at the FIFA World Cup in Russia
  6. Nordic Council of MinistersOECD Report: Gender Equality Boosts GDP Growth in Nordic Region
  7. Centre Maurits Coppieters“Peace and Reconciliation Is a Process That Takes Decades” Dr. Anthony Soares on #Brexit and Northern Ireland
  8. Mission of China to the EUMEPs Positive on China’s New Measures of Opening Up
  9. Macedonian Human Rights MovementOld White Men are Destroying Macedonia by Romanticizing Greece
  10. Counter BalanceControversial EIB-Backed Project Under Fire at European Parliament
  11. Nordic Council of MinistersIncome Inequality Increasing in Nordic Countries
  12. European Jewish CongressEU Leaders to Cease Contact with Mahmoud Abbas Until He Apologizes for Antisemitic Comments

Join EUobserver

Support quality EU news

Join us