Politics

EU wants uniform processing of securities transactions

By 2013 the Europe-wide uniform processing of securities transactions was to be in place. In mid-April the European Central Bank (ECB) stated that this timetable for the “Target2Securities” (T2S) programme could not be kept to. According to the ideas of the ECB and the EU Commission, the fragmented landscape for processing in Europe, with specialized companies working nationally, is to be simplified and the cross-border processing of securities transactions made cheaper. Target2Securities is another building block in the integration of financial structures in Europe. In the existing Target System, the ECB and national central banks are already operating a system that handles payments in the billions every day.

Germany Fund to be extended?

In March last year the German government set up the so-called Germany Fund to secure money provision to the economy in the financial crisis. The instrument was supposed to expire at the year’s end, but now Economics Minister Rainer Brüderle (FDP) has come out with a demand to convert the Fund into a source of promotion money for innovative firms. So far, out of the €115 billion in the Germany Fund, guarantees and credits amounting to only 10% of that, i.e. €11.5 billion, have been asked for. The business promotion bank KfW has in this connection approved loans to the value of €6.8 billion for operating resources and issued blanket loans to banks totalling 3 billion euros. Some 9,000 businesses have been given guarantees to a value of 4.66 billion euros. Half the money went to benefit small and mid-sized businesses. Resistance is emerging to the idea of conversion to an innovation fund, meaning extension.

MiFID to be improved

Two and a half years ago the MiFID (Markets in Financial Instruments Directive) came into force. The directive’s effectiveness in bringing more transparency on the share market, which was meant to lead to a Europe-wide harmonized securities market, still leaves something to be desired. While credit institutions must inform their customers as to prices and commissions when selling investment products, most banks are still having their orders carried out on a stock exchange, without – as required – exploring the truly most favourable alternative for their customers. Shareholder associations like the European Federation of Investors (EFI) are complaining that trading fees have gone down only for professional investors like investment banks, but not for normal investors. While it is true that competition among Europe’s stock exchanges has intensified and alternative trading platforms (Multilateral Trading Facilities, MTF) are competing with the established ones, they are in the main used by professionals. Additionally, Europe, by contrast with the USA, lacked an index of prices in various trading places, said the objections. To allow better prices particularly for private investors too, the EU Commission is now looking into the set of regulations. Germany’s Federal Institution for Financial Services Oversight (BaFin) recently sent out a questionnaire on this. Brussels wants to extend the information duty for commissions and possible conflicts of interests also to insurance policies, funds and certificates.

BaFin and Bundesbank allegedly block information

In March, the Hessen Administrative Court of Justice ruled on appeal that Germany’s Federal Institution for Financial Services Oversight (BaFin) must under the Freedom of Information Act give a plaintiff documents to inspect. To date, private persons have a right under the Act to inspect information concerning them stored with authorities. The umbrella body of German banking associations, the Central Credit Committee (ZKA), has now called for the embodiment in the Freedom of Information Act of a rule making an exception for financial oversight. “If credit institutions have to fear information being passed to third parties under certain circumstances, the existing form of cooperation between financial oversight and the institutions covered can no longer be guaranteed,” warned the Committee. Already last year, on CSU initiative, a proposed amendment to the Act went through the Bundesrat. The Bundestag did not follow suit.

Banking association wants to rescue all banks

The Federal Association of German Banks (BdB) put out a keynote paper in late March specifying the rescue of systemically relevant financial institutions. The object was stated as being to create machinery to bring about an ordered departure from the market by economically unsuccessful enterprises of importance to the financial system as a whole (too big or too interconnected to fail). Against the background of the facts that an institution’s importance to the system cannot be defined statistically and in the past institutions of various sizes have failed, the association is calling in its paper for a new set of regulations that should apply to all institutions in the financial sector – private banks, savings banks, cooperative banks and insurance companies. Banking oversight should be strengthened in this connection, and able to give consideration to ways of restructuring in the event of business difficulties, transient or not. On the basis of emergency plans, the authority should be able to form a picture of the situation rapidly. If the institution’s own restructuring does not yield success, in a second stage a procedure would be introduced by the authority. System-relevant parts of the institution ought then to be hived off into a “good bank”. If in a crisis situation no purchaser is found for this, the parts may alternatively be hived off into a “bridge bank”, to be headed by an experienced manager backed by the financial-market stabilization institution. In order to reduce the burden on taxpayers, the BdB wishes in future to involve creditors more in restructuring. In crisis situations these are in future to convert debt into equity holdings (Debt-Equity Swaps). The parts of a crisis institution that cannot be saved would then be wound down in ordinary insolvency proceedings. Here the oversight authority’s role in appointing a bankruptcy administrator should be strengthened. There have been strong criticisms of the keynote paper from the FDP. The liberals’ bankruptcy expert Christian Ahrendt complained that there were no statements about how the fund contemplated was to be fed in a crisis situation. The “black-yellow” (Christian Democrat plus Liberal) government wishes to submit a bill on the rescue of system-relevant institutions itself by mid-year.