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The recent financial crisis has demonstrated that a failure of Systemically Important Financial Institutions (SIFIs) could seriously damage the stability of the financial system. A precise and consistent definition of a SIFI is pivotal to ensure efficient and effective regulation of the global financial sector. This paper proposes a threefold test logic that allows to classify Financial Institutions as systemically important across the various industry segments.
Libra – a global virtual currency project initiated by Facebook – has been the subject of many controversial discussions since its announcement in June 2019. This paper provides a differentiated view on Libra, recognising that different development scenarios of Libra are conceivable.
Libra could serve purely as an alternative payment system in combination with a dedicated payment token, the Libra coin. Alternatively, the Libra project could develop into a broader financial infrastructure for advanced financial services such as savings and loan products operating on the Libra blockchain. Based on a comparison of the Libra architecture with other cryptocurrencies, the opportunities and challenges for the development of the respective Libra ecosystems are investigated form a commercial, regulatory and monetary policy perspective.
In this exploratory article, we consider the future of Deutsche Bank and Commerzbank and develop a new approach to the topic: instead of a merger of DB and CB we propose to consider a partial merger of the IT and related back office functions in order to create the basis for an Open Banking platform in Germany. Such a platform would act as a cross-institutional infrastructure company in which the participating banks develop a common data and IT platform (while respecting the data protection regulations). Significant parts of the transaction processes would be pooled by the institutions and executed by the Open Banking platform. Moreover, the institutions remain legally independent and compete with each other at the level of products and services that are developed and produced using just this common data and IT platform – “national champions” would not be created.
But such an “Open Banking Platform” could become even the nucleus of a European Banking platform that could be competitive with existing global data platforms from the USA and China which are already offering financial services and are likely to expand their offerings in the foreseeable future. The proposed model of an open data platform for banks prevents the emergence of national champions and supports the main goal of the banking union: creation of a financial system, in which single banks can be resolved without provoking a systemic crisis and forcing taxpayers to finance bailouts.
Artificial Intelligence (AI) will be one of the key technologies driving the future competitiveness of numerous industries. However, the term "AI" is defined in a variety of ways. AI could be understood as an umbrella term for technologies and systems that carry out tasks otherwise only executable with human intelligence. This requires specific skills that fall into the broad categories of "Sense", "Comprehend", "Act" and "Learn". Through machine learning, modern AI systems can be trained to adapt to changes in their environment, self-optimise and hence achieve better results than earlier versions of AI systems that were based on clearly defined, pre-programmed rules. Based on AI methods, rational and autonomous agents can be developed that collect and analyse relevant information from their environments, come to optimal conclusions based on certain performance parameters and eventually perform physical actions (e.g. robotics) or virtual actions (e.g. chat bots). Machine learning algorithms ensure that the information base of the system is continuously updated so that performance of the system is optimised in an iterative process.
The importance of agile methods has increased in recent years, not only to manage IT projects but also to establish flexible and adaptive organisational structures, which are essential to deal with disruptive changes and build successful digital business strategies. This paper takes an industry-specific perspective by analysing the dissemination, objectives and relative popularity of agile frameworks in the German banking sector. The data provides insights into expectations and experiences associated with agile methods and indicates possible implementation hurdles and success factors. Our research provides the first comprehensive analysis of agile methods in the German banking sector. The comparison with a selected number of fintechs has revealed some differences between banks and fintechs. We found that almost all banks and fintechs apply agile methods in IT projects. However, fintechs have relatively more experience with agile methods than banks and use them more intensively. Scrum is the most relevant framework used in practice. Scaled agile frameworks are so far negligible in the German banking sector. Acceleration of projects is apparently the most important objective of deploying agile methods. In addition, agile methods can contribute to cost savings and lead to improved quality and innovation performance, though for banks it is evidently more challenging to reach their respective targets than for fintechs. Overall our findings suggest that German banks are still in a maturing process of becoming more agile and that there is room for an accelerated adoption of agile methods in general and scaled agile frameworks in particular.
The importance of agile methods has increased in recent years, not only to manage software development processes but also to establish flexible and adaptive organisational structures, which are essential to deal with disruptive changes and build successful digital business strategies. This paper takes an industry-specific perspective by analysing the dissemination, objectives and relative popularity of agile frameworks in the German banking sector. The data provides insights into expectations and experiences associated with agile methods and indicates possible implementation hurdles and success factors. Our research provides the first comprehensive analysis of agile methods in the German banking sector. The comparison with a selected number of fintechs has revealed some differences between banks and fintechs. We found that almost all banks and fintechs apply agile methods in IT-related projects. However, fintechs have relatively more experience with agile methods than banks and use them more intensively. Scrum is the most relevant framework used in practice. Scaled agile frameworks are so far negligible in the German banking sector. Acceleration of projects is apparently the most important objective of deploying agile methods. In addition, agile methods can contribute to cost savings and lead to improved quality and innovation performance, though for banks it is evidently more challenging to reach their respective targets than for fintechs. Overall our findings suggest that German banks are still in a maturing process of becoming more agile and that there is room for an accelerated adoption of agile methods in general and scaled agile frameworks in particular.
A key technology driving the digital transformation of the economy is artificial intelligence (AI). It has gained a high degree of public attention with the initial release of the chatbot ChatGPT, which demonstrates the potential of generative AI (GAI) as a relatively new segment within AI. It is widely expected that GAI will shape the future of many industries and society in the coming years. This article provides a brief overview of the foundations of generative AI (“GAI”) including machine learning and what distinguishes it from other fields of AI. Furthermore, we look at important players in this emerging market, possible use cases and the expected economic potential as of today. It is apparent that, once again, a few US-based Big Tech firms are about to dominate this emerging technology and that the European tech sector is falling further behind. Finally, we conclude that the recently adopted Digital Markets Act (DMA) and the Digital Service Act (DSA) as well as the upcoming AI Act should be reviewed to ensure that the regulatory framework of European digital markets keeps up with the accelerated development of AI.
The financial sector plays an important role in financing the green transformation of the European economy. A critical assessment of the current regulatory framework for sustainable finance in Europe leads to ambiguous results. Although the level of transparency on ESG aspects of financial products has been significantly improved, it is questionable whether the complex, mainly disclosure-oriented architecture is sufficient to mobilise more private capital into sustainable investments. It should be discussed whether a minimum Taxonomy ratio or Green Asset Ratio has to be fulfilled to market a financial product as “green”. Furthermore, because of the high complexity of the regulation, it could be helpful for the understanding of private investors to establish a simplified green rating, based on the Taxonomy ratio, to facilitate the selection of green financial products.
In the aftermath of the Wirecard scandal the German lead stock market index DAX has undergone a series of reforms, including the introduction of a profitability criterion based on EBITDA for new DAX members and enhanced financial reporting requirements with specified sanctions for non-compliance. Furthermore, DAX members need to adhere to certain provisions in the German Corporate Governance Code relating to audit committees. The final step of the reform was implemented in September 2021: the extension of the DAX from 30 to 40 constituents, with the ranking based solely on the free float market capitalisation. After one year of experience with the new design of the DAX, this paper concludes that the reform has strengthened the DAX in terms of diversification, quality and adaptability. However, there is still room for further improvement by introducing a minimum ESG score for DAX companies and thus making sustainability a relevant factor in the selection process. In addition, full compliance with the recommendations of the German Corporate Governance Code should be a condition for DAX companies. Furthermore, the profitability criterion should be applied on a continuous basis to ensure that loss-making companies can be excluded from the DAX after a grace period.
The “European Green Deal” stipulates that the EU will become climate-neutral by 2050. This transformation requires enormous investments in all major sectors including energy, mobility, industrial manufacturing, real estate and farming. Although the EU Commission has announced that a total of EUR 1 trillion will be invested into the green transformation of the European economy over the next ten years, the majority of the investments must be financed by the private sector. Alongside many factors affecting a successful implementation of the Green Deal, a regulatory framework for the financial industry has to be established to facilitate the financing of sustainable investments. To that end, the European Sustainable Finance Strategy lays the foundation for a complex set of different measures that have been launched in recent years. This article provides a comprehensive overview of key regulatory initiatives such as the taxonomy regulation, the disclosure frameworks for both corporates and financial institutions and other aspects of financial market regulation that have already significantly improved the regulatory framework for sustainable finance. Nevertheless, some additional instruments could be considered, such as a reform of top management remuneration or the provision of tax incentives for green investments in the real economy, and these are briefly discussed.
