Future topics of banking regulation

Power Talk Banking Regulation

Summary of a discussion with Burkhard Eckes (Head of Banking & Capital Markets, PwC), Dominique Laboureix (Member of the Board, Single Resolution Board) and Sylvie Matherat (Member of the Board, Deutsche Bank AG) at the 18th Handelsblatt Conference “European Banking Regulation” (22-24 November 2017 in Frankfurt, Germany). Host of the discussion was Daniel Schäfer (Head of Handelsblatt’s finance pages).

About the profitability of the banks

Sylvie Matherat: From her point of view, the discussion about more capital and liquidity must slowly come to an end. A way to be more profitable must be discovered and therefore the return on assets must be higher than the cost of capital. The return will never be as high as it was before the financial crisis again. However, that is normal and an acceptable level must be reached now.

Burkhard Eckes: Banks should rethink their operations instead of over-relying on their business model. Here he essentially sees three possible models. One thought was the “Internet Bank” as an additional bank, which is really only accessible via the internet. Another option, which is currently not being used a lot, is the “platform bank”. With it, it is possible to remain present for the customers and to offer them what they need. So you could benefit from the fact that others, maybe even competitors, could provide the service behind it for a lower price. He sees the third possibility in the outsourcing of individual parts from the value chain.

About the signs of deregulation and interpretations

Sylvie Matherat: She does not currently see any signs of deregulation and she thinks that such a thing is not desired by the entire banking sector. The regulatory process was painful and making a step backwards would certainly be just as painful. However, a relief for the sometimes very detailed reporting would be welcome. In addition, changing rules has to be stopped in time before the deadline ends, so that the banks have time to implement them. More organization would be needed here.

Burkhard Eckes: Even though it is actually easy to think about changing the interpretations and implementation rules in the US instead of changing the regulations, he sees no signs for this in Europe and thus no signs of deregulation. Regarding the frequency of implementation rules and interpretations of guidelines, which for example appeared almost on a weekly basis with MIFID II, he criticised that a bank could not do it all by the beginning of 2018.

Dominique Laboureix: The EBA regularly uses peer reviews to check how national regulators have implemented the rules and they take action if they deviate from the EU regulation. In the context of SSM and SRM the institutes are also given a more stable vision on how to implement the rules. The pros and cons of less regulation would always be weighed up. He is not sure whether the classic risks would have to be revised again in the future. Moreover, it is about new risks and the question of how far these can be compared to the current framework. For example, the risks of FinTechs can now largely be measured, but in the future quite different risks could arise, which then also need to be taken care of.

About the risk of the interest rate

Dominique Laboureix: The sensitivity analysis carried out by the ECB would have shown that the overall increase in interest rates would have a positive effect on the institutions. Nonetheless, a rapid rise in interest rates is a risk that should be hedged. In doing so, banks should take note of the opportunity that it is currently relatively cheap to issue financial instruments on the market.

Burkhard Eckes: The BaFin stress test also has shown that with a rapid increase of two percentage points only 68 of 1,555 institutes would not survive. This unlikely scenario shows that the risk is currently not a big problem.

About Basel V, VI …

Sylvie Matherat: Her current impression is that there will be no Basel V and even if there was, she wouldn’t have a problem with it, as long as the regulation is uniform. A rapid rise in interest rates is unlikely, because of the central bank’s role. However, a progressive increase is very welcome, in particular for a bank with a large deposit volume, such as Deutsche Bank. One should see the rise in interest rates as an opportunity, because this is a sign of an economy that is recovering.


More interesting discussions, panels and power talks about the latest topics in European banking regulation will be scheduled for this year’s Handelsblatt Conference “European Banking Regulation” on 19-21 November 2018 in Frankfurt, Germany.

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