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62
The paper analyses the linkages from financial developments to public finances. It maps and discusses the transmission channels to fiscal variables. These channels include asset prices, financing conditions, balance sheets of banks, non-banks and central banks and international linkages. The study argues that the fiscal effects via each and all these channels can be very serious in magnitude and can put the sustainability of public finances at risk. However, there is an only limited in-depth analysis of these channels and risks.
61
The financial crisis of 2007-08 has stressed the importance of a sound financial system. Unlike other studies weighing the pros and cons of market versus bank-based systems, this paper investigates whether the main elements of the German financial system can be regarded as complementary and consistent. This assessment refers to the idea that there is a potential for positive interaction between different elements in the system that is actually used to make it more valuable to economy and society and more robust to crises. It is shown that the old German bank-based system, where the risk of long-term lending by large private commercial banks was limited by the membership in supervisory boards and strong personal ties between all stakeholders, was a consistent system of well-adjusted complementary elements. After reunification, a hybrid system has emerged where, on the one hand, public savings banks and cooperative banks maintain their role as lenders, but on the other, large private banks have withdrawn from their former dominant role in financing and corporate governance. It is argued that this transition to stronger capital-market and, accordingly, shareholder value orientations has occurred at the expense of consistency.
60
This paper aspires to provide an overview of the issue of diversity of banking and financial systems and its development over time from a positive and a normative perspective. In other word: how different are banks within a given country and how much do banking systems and entire financial systems differ between countries and regions, and do in-country diversity and between-country diversity change over time, as one would be inclined to expect as a consequence of globalization and increasingly global standards of regulation?
As the first part of this paper shows, the general answer to these questions is that there is still today a surprisingly high level of diversity in finance. This raises the two questions addressed in the second part of the paper: How can the persistence of diversity be explained, and how can it be assessed? In contrast to prevailing views, the author argues that persistent diversity should be regarded as valuable in a context in which there is no clear answer to the question of which structures of banking and financial systems are optimal from an economic perspective
59
In this note, we first highlight different developments for banks under direct ECB supervision within the SSM that may prompt further investigation by supervisors. We find that banks that were weakly capitalized at the start of direct ECB supervision (1) still face elevated levels of non-performing loans, (2) are less cost-efficient and (3) reduced their share of subordinated debt financing over the last years. We then stress the importance of continuous and ongoing cost-benefit analysis regarding banking supervision in Europe. We also encourage processes to question existing supervisory practices to ensure a lean and efficient banking supervision. Finally, we underline the need of continuous and intensified coordination among regulatory bodies in the Banking Union since the efficacy of European bank supervision rests on its interplay with many different institutions.
This document was requested by the European Parliament's Committee on Economic and Monetary Affairs. It was originally published on the European Parliament’s webpage.
58
n der Literatur wird oftmals angeführt, dass die Grunderwerbsteuer weder aus Sicht des Äquivalenzprinzips noch aus Sicht des Leistungsfähigkeitsprinzips zu rechtfertigen ist und daher in einem modernen Steuersystem nichts verloren hätte. Das vorliegende Papier weist darauf hin, dass die Grunderwerbsteuer Parallelen zur Grundsteuer aufweist und sich, zumindest aus ökonomischer Sicht, in eine Grundsteuer umbauen ließe. Dies könnte insbesondere dann interessant sein, wenn die derzeitige deutsche Grundsteuer in eine reine Flächensteuer umgebaut wird, die den Wert der Bebauung unbesteuert lässt. Ein Umbau der Grunderwerbsteuer, bei der der Kaufpreis dynamisiert wird und dann einer jährlichen Steuer unterworfen wird, hat einige Vorteile. Diese resultieren daraus, dass der negative Effekt auf die Zahl der Immobilientransaktionen (Lock-in-Effekt) abgemildert würde. Könnte die Dynamisierung treffsicher an die regionale Immobilienpreisentwicklung angepasst werden, entfällt der Lock-in-Effekt für Immobilien, die bereits einmal der dynamisierten Grunderwerbsteuer unterworfen waren, sogar komplett. Dies hat nicht nur positive Effekte auf das Funktionieren des Wohnungs- und Arbeitsmarktes, sondern kann auch dem Problem der Share Deals entgegen wirken.
57
Zum ersten Mal wurde in Deutschland eine groß angelegte wissenschaftliche Studie zur Machbarkeit und zum Nutzen einer säulenübergreifenden Renteninformationsplattform durchgeführt, unter realen Bedingungen und mit mehreren tausend Teilnehmern. Die beiden zentralen Ergebnisse sind, dass ein elektronisches Rentencockpit auch in Deutschland technisch machbar ist und beträchtlichen individuellen Zusatznutzen für die Bürgerinnen und Bürger stiften würde. Die Langfristanalysen der Pilotstudie zeigen, dass selbst die einmalige Schaffung von Rententransparenz für viele Teilnehmer Anlass genug ist, ihren Rentenplan zu überdenken und sich aktiv mit ihrer Altersvorsorge auseinanderzusetzen und ihr Verhalten zu ändern. Teilnehmer mit Zugang zu einem elektronischen Rentencockpit fühlen sich nach der Studie deutlich besser informiert und neigen dazu ihr Sparverhalten stärker anzupassen als Personen ohne Zugang. Die außerordentlich hohe Bereitschaft zur Teilnahme und die Antworten in den Online-Befragungen sind zudem Beleg für den großen Bedarf an systemgestützter, individueller Rententransparenz. Soll ein Rentencockpit Verbreitung in Deutschland finden, scheint eine automatisierte, elektronische Bereitstellung von Vertragsdaten von Seiten der Rententräger jedoch unabdingbar, da die eigenständige Suche und teilmanuelle Bereitstellung von Standmitteilungen für die meisten Studienteilnehmer ein großes Hindernis darstellt.
56
Über Scheinriesen: Was TARGET-Salden tatsächlich bedeuten : eine finanzökonomische Überprüfung
(2018)
Der TARGET-Saldo der Bundesbank beläuft sich gegenwärtig auf knapp 1 Billion Euro. Kritikern zufolge birgt dieser Umstand hohe Lasten und Risiken für den deutschen Steuerzahler und zeigt, dass Deutschland zu einem „Selbstbedienungsladen“ im Eurosystem geworden sei. Vor diesem Hintergrund erörtert das Papier im Detail, wie TARGET-Salden überhaupt entstehen und was sie finanzökonomisch bedeuten. Die wirtschaftspolitische Analyse kommt zu dem Schluss, dass - anders als von den Kritikern behauptet- unter den Bedingungen einer Währungsunion im Normalbetrieb - TARGET-Salden lediglich Verrechnungssalden ohne weitere Implikationen sind, die aber nützliche Informationen über ökonomisch tieferliegende, regionale Verschiebungen geben können. Unter dem Extremszenario eines Zerfalls der Währungsunion können TARGET-Salden zwar als offene Positionen interpretiert werden, deren spätere Erfüllung würde aber ähnlich dem Brexit von komplizierten politischen Verhandlungen abhängen, sodass über die Werthaltigkeit allenfalls spekuliert werden kann. Sollte man das Extremszenario für bedeutend halten, und politisches Handeln fordern, erscheinen zwei Lösungen sinnvoll. Beide Vorschläge führen zu einer institutionellen Stärkung der Eurozone: i) die Einführung einer Tilgungspraxis, wie sie im US-amerikanischen Fedwire-System angewandt wird. Dabei handelt es sich um eine rein fiktive Tilgung in Form einer Umbuchung auf einem gemeinsamen (Offenmarkt-)Konto bei der EZB; ii) die Bündelung aller monetären Aktivitäten bei der EZB, sodass eine regionale Abgrenzung von Zahlungsvorgängen entfällt (und damit die TARGET-Salden verschwinden), weil alle Banken in direkter Beziehung zu ein und derselben Zentralbank stehen und der Zahlungsverkehr direkt zwischen den beteiligten Banken stattfindet.
55
Improving financial conditions of individuals requires an understanding of the mechanisms through which bad financial decision-making leads to worse financial outcomes. From a theoretical point of view, a key candidate inducing mistakes in financial decision-making are so called present-biased preferences, which are one of the cornerstones of behavioral economics. According to theory, present-biased households should behave systematically different when it comes to consumption and saving decisions, as they should be more prone to spending too much and saving too little.
In this policy letter we show how high frequency financial transaction data available in digitized form allows to precisely categorize individual financial-decision making to be present-biased or not. Using this categorization, we find that one out of five individuals in our sample exhibits present-bias and that this present-biased behavior is associated with a stronger use of overdrafts. As overdrafts represent a particularly expensive way of short-term borrowing, their systematic use can be interpreted as a measure of suboptimal financial-decision making. Overall, our results indicate that the combination of economic theory and Big Data is able to generate valuable insights with applications for policy makers and businesses alike.
54
How demanding and consistent is the 2018 stress test design in comparison to previous exercises?
(2018)
Bank regulators have the discretion to discipline banks by executing enforcement actions to ensure that banks correct deficiencies regarding safe and sound banking principles. We highlight the trade-offs regarding the execution of enforcement actions for financial stability. Following this we provide an overview of the differences in the legal framework governing supervisors’ execution of enforcement actions in the Banking Union and the United States. After discussing work on the effect of enforcement action on bank behaviour and the real economy, we present data on the evolution of enforcement actions and monetary penalties by U.S. regulators. We conclude by noting the importance of supervisors to levy efficient monetary penalties and stressing that a division of competences among different regulators should not lead to a loss of efficiency regarding the execution of enforcement actions.
53
A new governance architecture for european financial markets? Towards a european supervision of CCPs
(2018)
Does the new European outlook on financial markets, as voiced by the EU Commission since the beginning of the Capital Market Unions imply a movement of the EU towards an alignment of market integration and direct supervision of common rules? This paper sets out to answer this question for the case of common supervision for Central Counterparties (CCPs) in the European Union. Those entities gained crucial importance post-crisis due to new regulation which requires the mandatory clearing of standardized derivative contracts, transforming clearing houses into central nodes for cross-border financial transactions. While the EU-wide regulatory framework EMIR, enacted in 2012, stipulates common regulatory requirements, the framework still relies on home-country supervision of those rules, arguably leading to regulatory as well as supervisory arbitrage. Therefore, the regulatory reform to stabilize the OTC derivatives market replicated at its center a governance flaw, which had been identified as one of the major causes for the gravity of the financial crisis in the EU: the coupling of intense competition based on private risk management systems with a national supervision of European rules. This paper traces the history of this problem awareness and inquires which factors account for the fact that only in 2017 serious negotiations at the EU level ensued that envisioned a common supervision of CCPs to fix the flawed system of governance. Analyzing this shift in the European governance architecture, we argue that Brexit has opened a window of opportunity for a centralization of supervision for CCPs. Brexit aligns the urgency of the problem with material interests of crucial political stakeholder, in particular of Germany and France, providing the possibility for a grand European bargain.
52
Der Beitrag analysiert die Voraussetzungen für stabiles Geld und setzt sich dabei grundlegend mit Hayeks Thesen zu alternativen Währungssystemen sowie dessen fundamentaler Kritik an der Möglichkeit zur Gestaltung der Geldpolitik auf wissenschaftlicher Basis auseinander. Er prüft Hayeks Vorschlag zur Entnationalisierung des Geldes und seine Thesen zur Überlegenheit des im privaten Wettbewerb geschaffenen Geldes. In diesem Zusammenhang schlägt der Beitrag einen Bogen zur aktuellen Diskussion über Kryptowährungen und wirft die Frage auf, ob virtuelle Währungen wie etwa Bitcoin geeignet sind, den Hayekschen Währungswettbewerb zu entfalten. Sodann wird im Gegensatz zu Hayeks Forderung nach einer Abschaffung der Zentralbanken deren entscheidende Rolle für anhaltendes Wachstum bei stabilen Preisen skizziert und die Wichtigkeit der Unabhängigkeit von Notenbanken für die dauerhafte Durchführung einer stabilitätsorientierten Geldpolitik hervorgehoben. Gleichwohl ergeht der Hinweis, dass Notenbanken mit der Überschreitung ihres Mandats auf lange Sicht gesehen selbst den Status ihrer Unabhängigkeit unterminieren können und damit die Rückübertragung der Kompetenz für zentrale geldpolitische Entscheidungen auf Regierung und Parlament provozieren. Die Gefahren der weitgehenden Unabhängigkeit einiger weniger an der Spitze der Notenbanken anerkennend wird anschließend die Bedeutung ihrer Rechenschaftspflicht und Transparenz ihrer Entscheidungen unterstrichen.
51
New provisioning rules introduced by IFRS 9 are expected to reduce the procyclicality of provisioning. Heterogeneity among banks in the procyclicality of provisioning may not only reflect the formal accounting rules, but also variation in discretionary provisioning policies. This paper presents empirical evidence on the heterogeneity of provisioning procyclicality among significant banks that are directly supervised by the ECB. In particular, this paper finds that provisioning is relatively procyclical at banks that have i) high loans-to-assets ratios, ii) high shares of non-interest income in total operating income, iii) low capitalization rates, and iv) low total assets. Supervisory guidance provided to banks on how to implement IFRS 9 has mostly been of a qualitative nature, and may prove inadequate to prevent an undesirably wide future variation in provisioning among EU banks.
This paper was provided at the request of the Committee on Economic and Monetary Affairs of the European Parliament and commissioned and drafted under the responsibility of the Economic Governance Support Unit (EGOV) of the European Parliament. It was originally published on the European Parliament’s webpage.
50
The publication of the Liikanen Group's final report in October 2012 was surrounded by high expectations regarding the implementation of the reform plans through the proposed measures that reacted to the financial and sovereign debt crises. The recommendations mainly focused on introducing a mild version of banking separation and the creation of the preconditions for bail-in measures. In this article, we present an overview of the regulatory reforms, to which the financial sector has been subject over the past years in accordance with the concepts laid out in the Liikanen Report. It becomes clear from our assessment that more specific steps have yet to be taken before the agenda is accomplished. In particular, bail-in rules must be implemented more consistently. Beyond the question of the required minimum, the authors develop the notion of a maximum amount of liabilities subject to bail-in. The combination of both components leads to a three-layer structure of bank capital: a bail-in tranche, a deposit-insured bailout tranche, and an intermediate run-endangered mezzanine tranche. The size and treatment of the latter must be put to a political debate that weighs the costs and benefits of a further increase in financial stability beyond that achieved through loss-bearing of the bail-in tranche.
49
This study provides a graphic overview on core legislation in the area of economic and financial services. The presentation essentially covers the areas within the responsibility of the Economic and Monetary Affairs Committee (ECON); hence it starts with core ECON areas but also displays neighbouring areas of other Committees' competences which are closely connected to and impacting on ECON's work. It shows legislation in force, proposals and other relevant provisions on banking, securities markets and investment firms, market infrastructure, insurance and occupational pensions, payment services, consumer protection in financial services, the European System of Financial Supervision, European Monetary Union, euro bills and coins and statistics, competition, taxation, commerce and company law, accounting and auditing. Moreover, it notes selected provisions that might become relevant in the upcoming Article 50 TEU negotiations.
48
The German savings and cooperative banks of the 19th century were precursors of modern microfinance. They provided access to financial services for the majority of the German population, which was formerly excluded from bank funding. Furthermore, they did this at low costs for themselves and affordable prices for their clients. By creating networks of financially viable and stable financial institutions covering the entire country, they contributed significantly to building a sound and “inclusive” financial infrastructure in Germany. A look back at the history of German savings and cooperative banks and combining these experiences with the lessons learned from modern microfinance can guide current policy and be valuable for present and future models of microfinance business.
47
Bank regulators have the discretion to discipline banks by executing enforcement actions to ensure that banks correct deficiencies regarding safe and sound banking principles. We
highlight the trade-offs regarding the execution of enforcement actions for financial stability. Following this we provide an overview of the differences in the legal framework governing supervisors’ execution of enforcement actions in the Banking Union and the United States. After discussing work on the effect of enforcement action on bank behaviour and the real economy, we present data on the evolution of enforcement actions
and monetary penalties by U.S. regulators. We conclude by noting the importance of supervisors to levy efficient monetary penalties and stressing that a division of competences among different regulators should not lead to a loss of efficiency regarding
the execution of enforcement actions.
46
This paper applies the theory of structured finance to the regulation of asset backed securities. We find the current regulation in Europe (Article 405 of the CRR) and the US (Section D of Dodd-Frank Act) to be severely flawed with respect to its key intention: the imposition of a strict loss retention requirement. While nominal retention is always 5%, the true level of loss retention varies across available retention options between zero loss retention and full loss retention at the extreme ends. Based on a standard model of structured finance transactions, we propose a new risk retention metric RM measuring the level of an issuer’s skin-in-the-game. The new metric could help to achieve a better implementation of CRR/CRD-IV and DFA, by making disclosure of the RM-number compulsory for all ABS transactions. There are also implications for the operation of rating agencies. On a general level, the RM metric will be instrumental in achieving simplicity and transparency in securitizations (STS).
45
The paper provides an overview and an economic analysis of the development of the corporate governance of German banks since the 1950s, highlighting peculiarities – as seen from the meanwhile prevailing standard model perspective – of the German case. These peculiarities refer to the specific German notion and legal-institutional regime of corporate governance in general as well as to the specific three-pillar structure of the German banking system.
The most striking changes in the corporate governance of German banks during the past 50 years occurred in the case of the large shareholder-owned banks. For them, capital markets have become an important element of corporate governance, and their former orientation towards the interests of a broadly defined set of stakeholders has largely been replaced by a one-sided concentration on shareholders’ interests. In contrast, the corporate governance regimes of the smaller local public savings banks and the local cooperative banks have remained virtually unchanged. They acknowledge a broader horizon of stakeholder interests and put an emphasis on monitoring.
The Great Financial Crisis, beginning in 2007, has led to a considerable reassessment in the academic and political debate on bank governance. On an international level, it has revived the older notion that, in view of their high leverage and their innate complexity, banks are “special” and bank corporate governance also – and needs to be seen in this light, not least because research indicates that banks with a strong and one-sided shareholder orientation – and thus with what appears to be the best corporate governance according to the standard model – have suffered most in the crisis. In the German case, the crisis has shown that the smaller local banks have survived the crisis much better than large private and public banks, whose funding strongly depends on wholesale markets. This may point to certain advantages of their governance and ownership regimes. But the differences in the performance during the crisis years may also, or even more so, be a consequence of the business models of large vs small banks than of their different governance regimes.
44
The Capital Markets Union-project of the European Commission aims for an increase of marketbased debt financing of small and medium-sized enterprises (SMEs), complementing bank lending. In this essay we argue that rather than focussing on pure non-bank lending, a reasonable mix of bankand market-based financing should be considered. Banks are said to have a comparative advantage in critical lending functions such as credit screening, debtor monitoring and debt renegotiation. All forms of lending require a persistent skin-in-the-game of critical players in order to be effective. The regulator should insist on full disclosure of skin-in-the-game, thereby improving capital allocation and reducing systemic risks.
43
We provide an assessment of the Basel Committee on Banking Supervision (BCBS) proposal to restrict the internal ratings-based approach on bank risk and to introduce risk-weighted asset floors. If well enforced, risk-sensitive capital regulation results in a more efficient credit allocation compared to the standard approach. Thus, the internal ratings-based approach should be maintained. Further, the use of internal ratings-based output floors potentially results in unintended negative side effects. Input floors are likely a valuable tool to achieve risk-weighted assets comparability. Finally, the proposed measures have a potential detrimental impact for European banks as compared to others.