BAFIN IN THE CRISES - THE CRISIS OF BAFIN - MARTIN HELLWIG AND GERHARD SCHICK MPI COLLECTIVE GOODS AND FINANZWENDE - FORUM FOR A NEW ECONOMY
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
BaFin in the Crises –
the Crisis of BaFin
Martin Hellwig and Gerhard Schick
MPI Collective Goods and Finanzwende
May 26, 2021Introduction
▪ With € 70-80 billion in costs to taxpayers, the
Great Financial Crisis was particularly
expensive for Germany.
▪ Given this cost, one would have expected a
tightening of supervision and a cleanup of the
financial system.
▪ But as yet, the great banks have still not
regained a position of stability.
▪ And there is one scandal after the other, Cum-
Ex, WireCard, Greensill.
26/05/2021BaFin
▪ Created in 2002 through a merger of
previously separate bank, insurance and
market supervisors
▪ … in order to ensure that supervision would
not come under the sole control of the
Bundesbank and, indirectly, the ECB
▪ Cooperation Buba - BaFin: Employees of Buba
enter the banks, on behalf of Bafin, but Buba
filters findings before BaFin gets material
▪ BaFin under orders from Finance Ministry
26/05/2021Causes of the
Financial Crisis
▪ Lack of equity - too little loss absorption capacity
▪ Abuse of special purpose vehicles
▪ Excessive maturity transformation, reliance on
wholesale funding, SPVs, HRE, etc.
▪ Problematic Investments: Mortgage-Backed
Securities (US), Real-Estate Lending (Ireland,
Spain), Interbank Lending (Ireland, Greece,
Spain), Government loans, Shipping loans
▪ Illusions about risks, Manupulation of risk-
adjusted regulation
26/05/2021And the
Supervisor?
▪ Inactivity, Passivity – no recognizable attempt
to find out what was going on
▪ No questioning of risk strategies and risks…
▪ … from SPVs, wholesale money market
funding, concentration of risks in highly
correlated positions, questionable (shotgun)
acquisitions (Depfa, HGAA)
▪ No understanding of systemic risks
26/05/2021Explanations
▪ Comity and friendship with the supervisees
▪ Sharing of responsibility with Bundesbank
▪ A (justified) sense of banks having more
competence in risk modelling and assessment
(without attention to incentives)
▪ Legalisms, e.g., in dealing with SPVs
▪ Subordination to Finance Ministry
26/05/2021Politics
▪ Promotion of „national champions“ – especially
in areas where there is a sense of
backwardness (derivatives, technology)
▪ Politics of public banks (parafiscal institutions)
▪ – local and regional, but: Ministerpräsidenten
(heads of regional governments) are a major
force in federal politics; local politics also well
represented at th efederal level
▪ Protection of politically well connected debt
holders (churches, public TV,…)
26/05/2021Economics
▪ Three „pillars“, private, public, cooperative
▪ Public separated between local and regional
(Landesbanken)
▪ Retail dominated by public and cooperative
▪ Wholesale and industry funding traditionally
dominated by private („great“), but margin
erosion since 1994 – excess capacity
▪ Landesbanken never very profitable
▪ EU: guarantees are illegal state aid; 2001
agreement to abolish guarantees by 2005
26/05/2021Impact of the
crisis
▪ Most losses with Landesbanken plus IKB
▪ Covered-bond sector also hard hit
▪ … plus Dresdner (taken over by Coba in 2008)
▪ Government support provided bailouts for all
▪ Exit of Dresdner, Sachsen LB, WestLB,
▪ … the latter forced by COM.
26/05/2021Political Reactions
▪ No investigation of why German institutions
were so hard hit
▪ No investigation of the role played by lax
supervision
▪ „The crisis was produced in the US“ – first by
the production of toxic assets, then by letting
Lehman Brothers fail
▪ Resistance to any tightening of regulation
(except for hedge funds)
▪ Resistance to any exit and any bail-in
26/05/2021BaFin in the Crisis
▪ 2007 refusal to make cum-ex part of its
investigation of WestLB
▪ 2009 certification of the soundness of HSH
Nordbank‘s business model – even though the
shipping crisis was clear for everyone to see
▪ Forbearance on NPL accounting until the
creation of the SSM
▪ 2013 Special Investigation of Shipping Loans
without recognition of the crisis
26/05/2021Why these
(Non-)Reactions?
▪ Banking is political: Public banks as parafiscal
entities – and the Ministerpräsidenten are the
most powerful people in the country
▪ Protection of national champions
▪ Delays of reckoning as a basis for avoiding
transparency about costs and responsibilities
(a 2017 judgement of the Constitutional Court
was needed to make some information public)
26/05/2021Why this
Passivity?
▪ Subordinated to the Finance Minister
▪ … and the Finance Minister knows about the
importance of the Ministerpräsidenten in the
German political system
▪ Predominance of legal culture
▪ Fear of administrative court suits
▪ … no use of existing procedures for
interventions.
▪ Tradition of friendly cooperation with the
industry as a basis for avoiding frictions
26/05/2021Passivity ctd.
▪ Lack of competence in the assessment of
„innovative“ activities
▪ … and of internal models
▪ Lack of competitiveness in markets for
qualified personnel
▪ Awe of people whose positions in the industry
suggested that they did have the competence
▪ Fear of complaints in Berlin
26/05/2021Wirecard:
More of the Same? (1)
at first typical reaction of the
German political establishment:
▪ drastic wording,
▪ commissioning study,
▪ cover-up,
▪ nobody takes responsibility
26/05/2021Wirecard:
More of the Same?(2)
▪ Parliamentary probe makes cover-up
impossible and uncovers lobbyism, insider
deals, breaking of rules
▪ Clear case of criminal behaviour
▪ broad media coverage
▪ Civil society organisations like Finanzwende
remind of past scandals without adequat
reaction
▪ Federal elections in sight
26/05/2021Wirecard:
More of the Same?(3)
Heads of 3 responsible government
agencies (BaFin, DPR, APAK) had to
step down
New paradigm for BaFin?
New paradigm for auditing companies?
26/05/2021New paradigm for
financial supervision
▪ From "cuddling of the industry" to "law
enforcement"
▪ provide sufficient funding and career patterns
to allow the building of competence
▪ eliminate the division of tasks between BaFin
and Bundesbank
▪ create transparency about relations to the
ministry, make BaFin more independent
26/05/2021Current reforms … (1)
Reorganisation of BaFin with three
goals:
▪ Making supervisory and auditing activities
more effective
▪ Streamlining internal structures/procedures,
allocating responsibilities more clearly
▪ Supervising the financial market more
effectively with state-of-the-art technology
„furthermore: fundamental change in culture“
26/05/2021Current reforms … (2)
Legal changes:
▪ More rights to intervene for BaFin
▪ More possibilities for BaFin to perform
controls
▪ Ban on private trading in financial
instruments for BaFin employees
26/05/2021… fall short of
new paradigm
▪ „supervision with more bite“, but no
distancing from previous cuddling
▪ no relevant strengthening of consumer
protection
▪ No change in problematic interface
BaFin/Finance Ministry; lack of public
accountability
▪ Financial lobby still in BaFin board
26/05/2021You can also read
