Banking watchdog highlights capital markets risk in Germany

Source: Xinhua| 2018-08-24 20:46:37|Editor: xuxin
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BERLIN, Aug. 24 (Xinhua) -- Fragmented domestic capital markets pose a threat to economic growth in Germany, the country's Federal Financial Supervisory Authority (BaFin) warned on Friday.

Speaking to the magazine Wirtschaftswoche, BaFin director Raimund Roeseler highlighted a trend towards smaller and more regionally-focused lenders which had reduced the availability of German financial institutes which could act as strong partners in international transactions. "We need a big, global bank, which can accompany our companies abroad," Roeseler said.

Deutsche Bank, Germany's single largest bank, is exemplary of the development identified by the BaFin director. The Frankfurt-based bank has recently announced its retreat from the U.S. investment banking market in a bid to improve profitability and draw a line under its long-standing legal troubles in connection to fraudulent behavior by its New York office.

Despite a steep decline of its balance sheet relative to Wall Street giants during the past years, Deutsche Bank is still Germany's only bank with a truly global scope. The country's financial landscape is otherwise dominated by thousands of traditional retail and savings banks which tend to be deeply rooted in specific regions.

Roeseler cautioned on Friday that increasingly heated competition between these smaller banks to market loans to German customer had led to a deterioration in the quality of underwriting. "We note that there has been a decline in standards, particularly with regards to loans for businesses," he told Wirtschaftswoche.

"There is too much capacity in the market. All institutes want to expand but many are pursuing a similar business model," Roeseler explained.

As a consequence, Roeseler urged banks to start preparing for an eventual reversal of the current growth and credit cycle by cutting further costs and making their operations leaner. Otherwise they faced the risk of being highly exposed to a wave of potential defaults like the one last witnessed during the 2007/08 financial crisis.

The pessimistic verdict reached by Bafin on the health of the German capital market was echoed by Commerzbank board member Michael Reuther on Friday. Reuther told the newspaper Thueringer Allgemeine that competition for business customers in Germany was "brutal" at the moment.